Buying someone out of an inherited house
When grieving the death of a loved one, you are likely to experience a whirlwind of emotions – and this can make handling some of the more practical necessities all the more challenging and bewildering.
Probate of the deceased’s estate, for example, and the intricacies of the UK tax liabilities and inheritance rules, combine to create a potentially confusing situation – especially when inheritance of a property is at stake.
Although inherited property is common in the UK – it is commonly estimated that just over a third of the population will inherit property at one time or another – the complexities multiply if the inheritance is shared between several individuals. These are usually siblings, of course, but anyone named in a will can become joint owners of an estate with an equal share.
In the majority of cases, this will result in decisions having to be made about how to share the property. The question then arises whether it is possible and how to go about buying someone out of an inherited house.
I have inherited a property with an outstanding mortgage, what happens?
What happens in these circumstances will be determined by what emerges from the process of probate – the legal process involving the management of the deceased’s affairs, the settlement of outstanding debts, and the distribution of assets to the beneficiaries named in the will.
In some instances, for example, probate will have involved the settlement from the estate of all outstanding debts including any mortgage on the property in question. In that case, of course, the beneficiaries inherit the property free of any outstanding mortgage.
Alternatively, the deceased might have held life insurance that covered the cost of mortgage repayments for a given period of time or even arranged for it to be repaid in its entirety. The executors of the estate – and the beneficiaries of the will – have a clear interest in examining whether arrangements have already been made for the mortgage to be repaid.
If you are the sole beneficiary and have inherited ownership of the property but there was no life insurance and an outstanding mortgage balance remains, you will need to pay off that balance from your own savings or arrange for a probate mortgage – a remortgage of the property in your name.
Can I get a mortgage to buy someone out of an inherited house?
If you are one of several beneficiaries inheriting a share in the property, it remains a possibility for you to arrange a mortgage to buy out those other shares.
As you remortgage the property, the names of the other beneficiaries are removed from any existing mortgage – along with the removal of their names from the title deeds.
What happens if one sibling is buying out another?
Probably one of the most common situations arises when siblings have inherited shares in a property the ownership of which they agree should remain in the family.
The sibling looking to buy out his or her other siblings will need to raise the funds for that purpose, either from personal savings or by arranging a remortgage of the property in their own name. For the change of ownership, a formal document is submitted to the Land Registry along with a copy of the grant of probate.
If you intend to buy out the shares held by your siblings – or any other co-owner – you will need to budget for all the usual, standard setup costs of remortgaging a property.
All in all, therefore, it will soon become clear that the many factors at play – with all their complications and complexities – make it invariably helpful to seek the professional, independent advice on all the legal and tax issues before you decide to press ahead with your decisions.
What do you need to buy a sibling out of an inherited house in the UK?
Quite simply, unless you can raise the necessary funds from your own savings, you will need a mortgage.
The usual rules apply and many mortgage lenders will be looking for a deposit of at least 5% – but the bigger the sum, the better your chances of securing the most attractive mortgage deals.
If there are special circumstances – you might have poor credit, for example, or have an irregular income because you are self-employed – you might need the help and guidance of a specialist lender.
In that case, of course, an experienced mortgage broker can help identify the most likely lenders and assist you in securing a mortgage to buy out an inherited house.
What fees do I need to consider when getting a mortgage to buy out a sibling?
Along with the usual rules when applying for any type of mortgage, when you are looking for a mortgage to buy out siblings in the UK, a host of additional fees and charges invariably arise – such as legal fees, valuation or surveyors fees, mortgage arrangement fees, and Stamp Duty (if applicable).
For those reasons alone, it is worth reiterating the value of professional assistance and guidance from the relevant experts about the legal and tax implications of your intended course of action.
Inheriting property is fairly common in the UK and usually – but not always – involves an inheritance shared by two or more siblings.
It is certainly possible – and equally common – for one sibling to buy out the others’ shares to keep the property in the family. In the absence of significant personal savings, of course, a mortgage will be necessary.
Mortgages are available to help you buy a parent’s house from your sibling but a range of factors, including the legal, taxation, and financial implications make it more than prudent to seek the advice and guidance of experts such as ourselves here at NeedingAdvice.co.uk.
FAQs-Buying someone out of an inherited house
What are the First Steps When Someone Passes Away?
A will is established when a person dies. After the will is granted by the court, an executor must be appointed. An executor oversees the evaluation of the assets and the distribution of the assets according to the terms of the will. This process includes; settling any debts and distributing any remaining assets in accordance with the details contained within the will. The average time taken for this process is approximately four to eight weeks. It is strongly recommended that you seek professional assistance as soon as possible following a bereavement. You may need to consider a number of different options in order to ensure that your loved one’s wishes are carried out. Our helpful guides can provide you with further information.
What Happens if Siblings Cannot Agree and a Forced Sale is Needed?
The first step would be to contact a solicitor who has experience dealing with these types of situations. They will advise on whether the deceased had made provisions in their Will which could be used to settle the dispute between the siblings. If no provision was made then the court would have to decide how to resolve the matter.
If the deceased did leave a Will, the court will appoint an Executor to carry out the deceased’s instructions. Once the estate has been settled, the Executor will distribute the money amongst the beneficiaries.
How do you finance an inherited property to buy out heirs?
You should look into buying a mortgage to fund the purchase of the home. A mortgage allows you to borrow against the equity in the property rather than paying cash upfront. This means that you don’t have to come up with all the funds yourself. However, there are some things to bear in mind before taking out a mortgage.
Firstly, you should check that you can afford the repayments. Secondly, you should ensure that you can afford to pay off the monthly payments once the property is sold. Finally, you should ensure that the lender does not require you to sell the property within a certain period of time.
Read about remortgaging an inherited property on our other blog.
What is capital gains tax?
Capital Gains Tax (CGT) is charged on the profit gained from selling a property. CGT is calculated based on the difference between the sale price and the original cost of the property. For example, if you bought a £100,000 property for £50,000 and sold it for £150,000, you would have to pay CGT on the £100,000 gain.
There are two main ways to avoid paying Capital Gains Tax:
1. Sell the property at a loss – In this case, you would only have to pay Capital Gains Tax on the amount you actually make from selling the property.
2. Remortgage the property – By remortgaging the property, you reduce its value so that you can claim back more of the capital gain.
What is an emergency grant of probate?
An emergency grant of Probate is available to help cover costs associated with administering the Estate. These include; fees payable to solicitors, legal fees, administration expenses and funeral costs. The amount of the grant varies depending on the circumstances surrounding the death but is usually around half of the total costs involved.
How Do I Refinance an Inherited Property to Buy Out Heirs?
Hard Money Lenders are a good choice for families who need to fund the purchase of the real estate. Estate Funding is available when there are more than two people involved in the ownership of a property. Traditional mortgage lenders won’t approve the loan because they don’t know how much equity each owner owns in the property. Hard money lenders require a down payment and collateral, but they aren’t concerned about the amount of equity owned by any individual. This type of loan is used when an owner needs to sell their share of the house without going through the hassle of selling it themselves. The seller assumes the loan and pays the lender. Interest rates tend to be higher than with banks, but you can usually get approval quickly. Most lenders require 75% down payment. The first choice should be to get a refinance loan from the bank. This will save you money because the bank will give you a lower interest rate than your siblings are paying. You will also pay less in closing costs since there won’t be any other properties involved. A refinance loan is usually easier to qualify for than a new mortgage. For any financial and legal advice, you can contact our team of financial advisors.
How probate affects an inherited property?
Executors should contact banks and lenders about mortgages on properties being inherited by the deceased. They may need to pay off the loans before selling the probate property. Lenders are generally sympathetic and many mortgages have a grace period during which repayments are suspended while an estate is being sorted out. If the deceased left no will, or a spouse was absent, then you will need a grant of representation to access the deceased’s bank account. You will then be responsible for settling any outstanding debts and paying taxes. Probate process Explained is an online legal dictionary. It provides definitions of terms related to probate law.
If you are interested in mortgage advice, you can contact our team of specialist mortgage brokers.
FAQs – What to do when a fixed-rate mortgage ends
What Happens at the End of a Fixed Rate Mortgage?
When the fixed rate period of a mortgage ends, the lender may offer you a new fixed rate mortgage. Or if they can’t offer you another fixed rate deal, they might offer you a variable rate mortgage. A variable rate mortgage means the amount you pay each month changes every year. You might be offered a longer repayment term (for example, five years instead of three) to make up for the fact that the interest rate on your loan will go up over time. But you’ll also pay more interest than if you’d had a shorter term. This depends on you, your loan provider and what you’ve decided about your future. You may decide to stay on your current fixed-rate mortgage deal or move on to a new one. Your lender may offer you a different fixed rate mortgage deal, or you may decide to go into a repayment plan. If you’re on a fixed rate mortgage, it can be a great idea to speak to a Mortgage Advisor who can help you make decisions about your options. After your fixed-rate mortgage expires, you may be able to refinance or extend your loan. You might also want to consider refinancing if interest rates drop. Speak with a fixed-rate mortgage broker today!
What are my options when my fixed rate mortgage ends?
Fixed-rate mortgages are great for people who want certainty over time. When you’ve got a fixed-rate mortgage, you know exactly how much money you’ll pay as monthly payments. You also know exactly what you’ll be paying for the rest of your life. But there are times when you may need to change your current mortgage provider. For example, maybe you’re moving house or you want to take advantage of a lower interest rate. Whatever your reason, you should speak to a mortgage advisor about whether changing your fixed-rate mortgage to another type of deal could be right for you.
Read about fixed-rate mortgages on our blog website.
Should I remortgage after my fixed term ends?
You should always think about remortgaging if you’re paying more than 4% per annum on your current loan. Even though this is a high-cost option, you could save money over the long run by taking advantage of lower rates. It’s important to remember that if you remortgage, you’ll have to repay any difference between the cost of your old mortgage and the cost of your new one. So you’ll need to work out how much you can afford to borrow before making a decision. You might find that a cheaper mortgage isn’t available in your area. In this case, you might want to look at other ways to reduce the cost of your mortgage such as cutting back on unnecessary expenses and reducing the size of your mortgage payment.
If you don’t want to remortgage, then you might want to consider extending your existing loan. This means you’ll continue to pay the same amount each month but you’ll have a longer repayment term. The length of the repayment term depends on many things including How much you owe; What your credit rating is like; And how much extra you can afford to pay each month. If you’re happy to carry on repaying your loan over a longer period, you may be able to get an extension. However, you’ll still have to pay off the full value of your home within the extended period. If you’re not sure whether you want to extend your loan, talk to a mortgage adviser.