Mortgage a property in probate and remortgaging an inherited property
There are many reasons you might want to mortgage a house under probate, which is the legal process by which a will is legally certified in court.
You might be the benefactor looking to replace the mortgage in your name, get capital for a property that’s not in your name, or buy an estate in probate.
A mortgage broker may be able to help you evaluate your options, including remortgaging this property.
The cash inheritance could be used to pay off the mortgage, or you could invest it and obtain a new mortgage.
Why inheritance should be used to pay off a mortgage is difficult. This is especially true if the loan is small.
If you are interested in becoming a serious property investor, there is also the possibility of using your inheritance to purchase another house.
Depending on the potential complications, it takes approximately six months to go through probate. If your beneficiary is patient, patience will be a virtue.
Is it possible to get a mortgage for an inherited property?
Yes, you can; there are many reasons to do this as below:
- If you inherit a property with a mortgage, you will need to remortgage it to your name.
- You may be interested in buying a house sold by its inherited owner while it is still in probate. This could be because the sale is necessary to settle outstanding debts or the new owners cannot afford the mortgage.
- A mortgage is a loan that can be used to finance home improvements if you inherit a house.
- If you have inherited property from others and wish to purchase them out.
Regardless of your reason, it is essential to remember that the probate must be completed before you can begin the remortgaging procedure.
This is because no lender will accept the case until the probate has been granted. It can take several months for this to complete, so you have plenty of time to think about what you want to do, and to talk to a broker to discuss your options.
Transferring a mortgaged home to your heirs
If the deceased had a life assurance policy covering the balance or another means of paying the debt, you will inherit the property and the mortgage.
The decision is yours to either sell the property or pay off the mortgage through the sale.
A broker with experience with inherited properties can help determine if you can afford the mortgage.
They will be able to meet with you and the mortgage lender of the deceased to decide on how much you have left.
Then, they’ll assess your finances to determine if you can take on the mortgage.
You may be able to stay with the same lender or renegotiate terms if it is. As a new applicant, however, you must meet all eligibility requirements, including income, history and outgoings.
Alternatively, you can switch to a different lender. A mortgage broker can assess the market and recommend whether there are better terms and rates elsewhere.
How to refinance and buy out other people from an agreement
You will need to make several decisions if you inherit a property from others, usually family members. The first is whether to sell it, continue to own it jointly or have someone else buy it. The steps to follow if you want to become the owner are:
- A solicitor will formalise your intent to purchase other owners by issuing a letter of intent.
- Contact a broker to verify that you are financially able to pay the mortgage. They will be able to assist you in creating a solid Application. This should include, at minimum, a 5% deposit.
- A lender that offers the best interest rates and terms for new mortgages is likely to approve your application. An expert broker can help you with this.
You are notifying the land registry by a solicitor that your mortgage has been approved and then paying the co-owners the agreed-upon portion.
A buy-to-let mortgage can be placed on an inherited home
You may want to keep an inherited property but not move in. You can rent the property out by remortgaging to a mortgage.
This type of mortgage has higher interest rates than traditional mortgages.
A stress test would use 5.5% or 5%, with more stringent requirements.
Lenders will often require applicants to apply.
- To earn at least £25,000 per year;
- You must have at least 20% deposit
- Rent that covers at least 125% of monthly mortgage payments;
- You should have experience as a landlord.
If you cannot meet any of the requirements, don’t panic. A broker can help you find a lender that is flexible and who will be most likely to consider your situation.
Sidenote – If the property you inherit is rented, the executors will be paid the rent until probate is completed.
Equity release and inheritance
You may not want to sell the property because of its sentimental value. However, you could still benefit from some equity being released.
You could also inherit a house through the equity transfer process.
Equity release and inheritance of a property
A homeowner can apply to their lender for cash release. They agree to an equity release repayment plan.
The lender is usually remunerated through the sale of the property after the death of the original applicant.
The inheritors would receive any money left over from the sale. Every lender will have a different time frame from the date of death when they want to be repaid, but it is usually more than a year.
You can pay the equity back if you inherit a property subject to equity release but not selling the property. You can:
- If the deceased had any other assets, you could use them to fund your purchase;
OR
- You can use your own money for the remainder of the loan.
OR
- You can purchase the property directly from the estate.
Equity release from an inherited house
You can borrow against a property if you inherit it, to make home renovations, or to buy another property. Once probate has been granted, you can borrow against it in the usual way.
What happens to a mortgage in probate?
Lenders will continue to charge the mortgage interest rate during this time. However, most lenders will allow payment deferral until after the probate process.
After the probate process is complete, executors can pay any remaining payments from the estate of the deceased.
What might the inheritance tax effect on a mortgage for an inherited property?
Inheritance tax will be charged if the inheritance is more than £325,000. This is called the “nil-rate band”. A mortgage is a detriment to the estate’s total value.
For example, if you have a £400,000 estate and a £150,000 mortgage, this would bring the estate’s total worth down to £250,000. This would mean that no inheritance tax would be required.
The tax rate would be 40% if the estate’s total value was more than £325,000. If the estate were worth £400,000, 40% of £75,000 (£30,000) would be charged.
Normally, if the property was held in joint names before either or both owners died, their nil rate bands can be considered.
If you have concerns about inheritance tax, it is important to get independent tax advice.
Is a property’s probate affecting its market value?
The probate process values property by its current market value.
It does not consider other options, such as whether someone is willing to pay more than the asking price. This often means that buyers receive a better deal than usual.