What is a transfer of equity?
To understand what is meant by a transfer of equity, we need to start with what is meant by equity. Equity is the difference between the value of a property and the amount of any loans secured against it. If you own a property worth £500,000 and you have a £400,000 mortgage on that property, the equity is £100,000. Equity typically builds as houses gain value and the amount owing reduces.
When we talk about a transfer of equity, we are referring to the co-ownership arrangement of a property. What is really happening, however, is two separate transfers; a transfer of the legal title to the property and a transfer of the beneficial title (also known as the equitable title). From a legal perspective, within a transfer of equity, the legal ownership of a property changes but at least one of the original legal owners remains as a registered owner of that property. It is also important to note that even though only part of the equity is being transferred, the whole legal title will be transferred. This may occur, for example, if:
- a couple with joint ownership divorce, and the property is placed into the ownership of one person; this may be the result of an agreement by one to buy the share of the other, or it may be ordered by the court as part of a settlement.
- a person marries and transfers part of the equity of their property to their new partner,
- there are several co-owners who have made a decision to alter the share of equity
Where a mortgage is outstanding
Where a mortgage is outstanding on a property, consent needs to be gained from the lender (e.g. the bank or building society) to allow the transfer of equity to proceed. It will then be up to the new owner whether they wish to continue with the original mortgage or apply for a new mortgage (this will be necessary if the lender does not agree to the transfer). It is also advisable to ask for advice from a property law Solicitor as, depending on the circumstances, stamp duty may be payable where a transfer of equity is dependent on a mortgage.
Completing the necessary documents for the transfer of equity
Before completing the transfer, the legal professional handling your transfer of equity will request and review the existing property title deeds, verify the identity of the transferor and transferee (this is essential before the transfer can proceed), and then draft the transfer deed. One of the key documents required to transfer equity from one party to another is the Land Registry TR1 form (Transfer of whole of registered title). The form requires the following to be completed:
- Details of the transferrer (the person transferring their equity) and transferor (becomes the sole registered proprietor of the property)
- Whether money is being paid as part of the transfer
- The type of title (full or limited)
- A declaration of trust (if there is more than one transferee)
- Any additional provisions
- Execution of the transfer – by the transferor, transferee, and the lender (where the property is being transferred subject to a charge). By the lender being involved in the transfer execution, they are effectively giving consent to the transfer.
The Land Registry’s AP1 form will also need to be completed to ensure that the land register is also changed to reflect the new ownership arrangement. To ensure the correct terminology is used in accordance with the Land Registry, applicants are advised to write on the AP1 form that the transaction is a “transfer of shares” if the transfer is not subject to a charge (a charge gives a lender security over an asset). If it is subject to a charge, the transfer should be described as a “transfer of shares subject to a charge”.
The transfer of equity process is relatively straightforward, however, it is always recommended that a property Solicitor or conveyancer handle the process on your behalf. Given the large amount often tied up in equity, it is important to ensure the correct process is followed and that the transfer is legally watertight.
Guillaumes LLP Solicitors is a full-service law firm based in Weybridge, Surrey. We have a highly experienced property law team who can assist you with all matters relating to the transfer of equity. To make an appointment, please call us on 01932 840 111.