If you and your long-term partner have been living together for a while, there may come a point when you both discuss owning the property jointly.
If they have been contributing financially towards the household bills and Mortgage this may seem like a sensible move, recognising their commitment.
But how do you actually do it?
Is it a straightforward process, or one which is complicated and expensive?
This guide aims to answer these question by explaining how to add someone to a mortgage and the various steps needed.
Table of Contents
- Reasons for adding someone to a mortgage
- To charge or not to charge?
- How to add someone new
- Mortgage tips
- Tenants in common or joint tenants?
- The 5 step process
You may remember that when buying your home you needed a solicitor to deal with the mortgage company and the buying process.
Adding someone to your mortgage is called a transfer of equity and works in a very similar way and will mean making changes to:
- Your mortgage arrangements
- Property ownership records
- Updating the legal charge
Reasons for adding someone to a mortgage
There are various reasons why the owner of a Property may want to add someone to their mortgage and these could be financial, personal or both.
The most common reason is adding a long-term partner, so they may have the security of owning the home they live in.
Sometimes the reason is related to money. Maybe the owner needs to generate a lump sum and asks a partner or friend to buy a portion of ownership. Or perhaps the cost of maintaining the mortgage payments is now too much and another income is needed.
It’s also possible to gift a share of the ownership, maybe to a son or daughter, to help them get started on the property ladder.
To charge or not to charge?
When you add someone to your mortgage you are also adding them as an owner of your property. They will receive a share of ownership, taken from your current holding
This share of the property has a value.
So should you sell this to them, for money, or gift it?
There is no hard and fast answer to this question. It depends!
If you have been living with your long-term partner for many years, with both of you contributing to the mortgage and upkeep, you probably feel quite comfortable with gifting the share.
If there is very little equity available, perhaps due to a downturn in property prices, then the question may not be so important and you can both enjoy any future price appreciation together.
Ownership of a property does not have to be 50/50.
Regardless of whether the person being added is paying for their share, you don’t have to give up, or even offer, 50%.
The amount will be for both of you to discuss and agree on. By using something called tenants in common, it would be possible to add someone new who would own say 25% and you would retain 75% ownership. Your solicitor would be able to provide advice and guidance regarding this.
CONTACT A REMORTGAGE EXPERT
If you wish to investigate your re-mortgage options we can put you in touch with a fully qualified whole of market mortgage broker.
How to add someone new
Once you have both decided on the financial side of things, it is time to take the next step.
For most people, the property concerned will have a mortgage associated with it. This will currently be in just one person’s name, and the intention is to add someone new so that there will then be two people listed.
Making any changes to who owns a property, or who will be on the mortgage, needs the formal agreement of the mortgage Lender and is called a transfer of equity.
To start the process you can either approach your current lender, or apply for a remortgage with a new lender. It’s normally a good idea to contact your lender first to see what they can offer.
Let’s take a look:
Current mortgage lender
Approaching your current lender will be the simplest route to take.
But it will still involve the usual income, credit and affordability checks.
The person being added will complete an application form, requesting that they are added to the mortgage. The lender is generally happy to see an extra person on the mortgage as it makes it more likely that you can afford the monthly repayments (as there’s now two incomes).
In assessing the application the lender will be looking at affordability (can they afford the repayments based on their income and expenses), credit history (do they have bad credit) and age (comparing their retirement age to the mortgage term).
The mortgage underwriters will take all of this information into consideration and then make a decision. It is possible that they will reject the application, when this happens it usually is because of a poor credit score or bad credit. But providing your own situation is still strong then the likely outcome is an approval.
New mortgage lender
This is essentially a joint remortgage application to a new lender.
Remortgaging involves swapping your mortgage over to a new lender, with all of the normal mortgage options available to you.
So you can choose the repayment method, interest rate, mortgage term and amount applied for.
As you are moving to a new lender, both of you will be subject to the standard credit and financial checks, and will need to provide proof of income and expenses.
The lender will also need to value your property, either by sending a valuer round, or by using a virtual valuation which gathers data remotely to make a decision.
This route will take a bit more time as the lender will be assessing both borrowers and the property. But by choosing to remortgage you will have the pick of the best remortgage deals to choose from.
Which is the best way?
There’s no quick answer to this question.
Going with your existing lender is likely to be quicker and cheaper (in terms of fees). However, you will be restricted to the interest rates and options that they have.
By asking your broker to search for the best deal they would have considered hundreds of different offers before showing you the one they recommend. This should have all or most of the options that you wanted from a remortgage, and may even be much cheaper each month.
In these situations it is generally the early repayment charges that will decide what happens.
Repayment fees can be quite hefty and should normally be avoided. So even though there is a better deal elsewhere, it’s often more prudent to stay put until the end of the fee period. ERCs will not be charged if you don’t move lender.
If you are unsure what to do then ask your broker for a comparison of the two, including the early repayment charges.
Mortgage tips
Credit status
If you are considering adding your partner then it’s worth considering their credit status beforehand. With a joint mortgage your partners credit file will be associated with your own, and vice versa.
If their credit profile is not so good, and contains poor credit or defaults, then it could affect your ability to gain credit in the future.
It’s not very romantic, but a good first step would be to obtain a copy of their credit report so you can both see what it looks like.
Early repayment charges
Early repayment charges, or ERCs, are applied if you repay some or all of your mortgage before the agreed term.
ERCs will be based on the term of the interest rate deal that you have. So a two year fixed rate will normally have penalties for the full two year period.
Early repayment fees will affect the cost of remortgaging to a new lender. Consequently, whether they apply or not should be confirmed before making any applications.
Mortgage advice
There are over 100 mortgage lenders in the UK, so we would always suggest using an independent mortgage broker to help.
They will be able to advise and help you both on the transfer of equity process and the responsibilities of having a joint mortgage.
There maybe occasions where you need to add someone to a buy to let mortgage or a holiday let mortgage. The basic process is still the same.
Let your broker know what your current lender has offered so that they can check if it’s a good deal.
They will be able to search the mortgage market looking for a better deal, saving you money for years to come.
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Tenants in common or joint tenants?
There are two ways of jointly owning a property, tenants in common or joint tenants. This decision is separate to the mortgage part and can only be dealt with by a solicitor or conveyancer.
We recommend that you (both) seek legal advice regarding which option may suit you best.
Here’s a quick overview of the two options:
Tenants in common
Owning a property as tenants in common will allow for the percentage ownership to be unequal.
As an example, one person could own 75% and the other 25%. Once established, these percentages don’t change.
When the financial side of acquiring and paying for a property is unequal, a tenants in common arrangement can be a good way to reflect the differences.
Should you sell the property, the proceeds will be divided up based on the percentage of the property that you each own.
However, if the other person dies, their part of the property will not automatically pass to you. This will be determined by the instructions in their will.
Joint tenants
With joint tenancy, according to the law, you both own 100% of the property.
This means that if the property were to be sold, the proceeds must be split equally.
Joint Tenancy ensures that, in the event one owner dies, their ownership of the property passes automatically to the other person. This is called Right of Survivorship and it also avoids probate and inheritance tax issues.
The Right of Survivorship cannot be altered by the terms of the deceased’s will or the rules of intestacy.
As beneficial joint tenants can only ever be owned via equal shares, it does not provide an option to recognise the different financial positions of each owner. As a solution to this, your solicitor may suggest drawing up a deed of trust, alongside the property.
BRIEF SUMMARY
Joint tenants
As joint tenants (sometimes called ‘beneficial joint tenants’):
- you have equal rights to the whole property
- the property automatically goes to the other owners if you die
- you cannot pass on your ownership of the property in your will
Tenants in common
As tenants in common:
- you can own different shares of the property
- the property does not automatically go to the other owners if you die
- you can pass on your share of the property in your will
HOW TO ADD SOMEONE TO YOUR MORTGAGE IN FIVE STEPS
Get legal advice
The first step will be to speak with a solicitor. They will able to explain what adding someone to your property means over the long term and will help you choose between tenants in common or joint tenants. If required, they should be able to draw up a deed of trust and will then deal with the changes at Land Registry.
Contact your existing lender
You need to check with your current lender whether they are able to add someone to your mortgage and what the costs will be. It’s also a good idea to establish what information they may need and a rough timeframe.
Check for early repayment charges
The discussions with your lender should include what early repayment charges apply to your mortgage, including when these may end.
Contact a mortgage broker
Ask an independent mortgage broker to look at the viability of moving lender. This is sometimes possible, even where ERC fees need to be paid. But it would be advantageous to know what other options you may have with a new lender.
Make an application
Depending on your decision, this would be with your current lender or with a new lender. Your solicitor will liaise with them and make the relevant legal changes to who owns the property and the security charge. If you are remortgaging with a broker then they will be on hand to make sure everything goes as smoothly as possible.
Also in this section
Remortgages
Day One Remortgages Explained
Guide to Remortgaging
Product Transfers
Transfer of equity mortgage
This post first appeared on Respect Mortgages - Be In The Know, please read the originial post: here
