Remortgaging an inherited property | Everthing you need to know

Inheriting a property often comes with emotional and financial considerations. Whether you’re planning to keep, rent, or sell it, understanding the remortgaging process is crucial to make informed decisions.

What is a Mortgage on an Inherited Property?

When you inherit a property, one of the first important decisions you’ll face is what to do with it. This can be an emotional time, as the property often holds cherished memories. You may find yourself considering options such as selling, renting, or even moving into your parents’ home.

From a practical perspective, several important questions arise:

• How do you transfer the inherited propertyA property inherited by a borrower. into your name?
• What taxes are applicable now?
• What happens to the existing mortgage on the property?

These decisions can feel overwhelming, but understanding your options will help you navigate this process more confidently. In this guide, we’ll answer all these questions and provide you with clear steps to manage your inherited property effectively.

How to Apply for a mortgage on an inherited property?

First and foremost, if you have recently inherited a property, there’s no need to make immediate decisions regarding your inheritance. Take your time to assess your options carefully and consider all possible variables before proceeding.

It’s important to understand that you cannot take any formal actions with the property until the probate process is complete. Therefore, the first step in remortgaging an inherited property is to apply for probate or obtain a letter of administration.

Probate is the legal process through which a Will is validated by a court and accepted as the official final testament of the deceased. This process typically takes around six months to complete. Assuming there are no complications, the grant of probate is usually issued within 4 to 8 weeks.

In cases where there is no valid Will, the process is known as dying intestate, and the estate will be distributed according to the rules of intestacy. Under these rules, only married or civil partners and certain close relatives are entitled to inherit the property.

When applying for a remortgageRefinancing an existing mortgage with a new mortgage. (refinancing an existing mortgage with a new one) on an inherited property, there are several factors to consider. Navigating these complexities can be challenging, so it’s highly recommended to consult a professional mortgage broker who can guide you through the process and help you secure the most suitable mortgage deal.

Mortgages and Inheritance Tax

When inheriting a property through probate, one of the most critical financial considerations is inheritance tax. You may be liable to pay this tax if the value of the inherited estate exceeds a specific threshold.

Currently, the standard inheritance tax threshold is £325,000. For married couples or those in a civil partnership, this threshold can increase to £650,000 upon the second death. Any value above these limits is typically taxed at 40%.

It’s also important to understand that you cannot avoid inheritance tax by purchasing or being gifted your family’s home. These actions do not exempt the property from tax liability. The same £325,000 threshold applies even if your parents are still alive and plan to pass the property on in the future.

If you’d like expert advice on inheritance tax, property valuation, or the complexities of managing inherited property, feel free to contact NeedingAdvice.co.uk Ltd for professional guidance.

Other Factors Related to Remortgaging an Inherited Property

Aside from the financial aspects, there are several other important factors to consider when remortgaging an inherited estate. These considerations often depend on ownership arrangements and the existing financial obligations tied to the property. Below, we explore common scenarios you may encounter:

Inheriting a House with Siblings

If the estate or family home is shared between two or more individuals, you will become a joint owner. In the UK, there are two main types of joint ownership:

• Joint Tenants: Ownership is shared equally, and if one owner passes away, their share automatically passes to the surviving owner(s).
• Tenants in Common: Each owner holds a specific share of the property, which can be passed on according to their will.

Each type of ownership comes with different legal responsibilities. In such cases, it’s highly recommended to consult a specialist mortgage adviser who can guide you through the available options and legal implications.

Selling an Inherited Property

Selling an inherited property is always an option, but it can be an emotional decision for many people. While considering this path, it’s essential to be aware of the financial implications, particularly Capital Gains Tax (CGT).

As property values tend to increase over time, you may be liable to pay CGT on any profit made from the sale.

• If you are a basic-rate taxpayer, CGT is charged at 18% on profits from the sale of a residential property.
• However, if you have moved into the inherited property and it becomes your primary residence, you may be exempt from CGT when you eventually sell it under the Principal Private Residence Relief.

Understanding these rules will help you make informed decisions and plan for any tax liabilities effectively.

Next Steps

We understand that after the loss of a loved one, arranging a mortgage or managing inherited property might be the last thing on your mind. That’s where we come in. As a team specialist mortgage brokers, we’re here to guide you through:

• Finding the right remortgage options tailored to your needs.
• Securing the best available mortgage deals and rates.
• Assisting you throughout the mortgage application process.

For expert advice and support, make an appointment or call us directly at 07912076990 to speak with one of our experienced mortgage advisors.

FAQ – Remortgages on Inherited Properties

1. Can I get a buy-to-let mortgage on my inherited estate?

Yes, you can apply for a buy-to-let mortgage under the right circumstances. Lenders will assess factors such as your rental income, credit history, and existing mortgage repayments. Engaging a specialist broker can help you explore a wider range of lenders offering competitive deals tailored for inherited rental properties.

2. What is the value of a home for probate purposes?

During probate, the property’s value is determined based on its market value at the time of the deceased person’s passing. This valuation is crucial for understanding potential inheritance tax implications and future decisions related to equityThe difference between the value of the property and the amo... release or sale.

3. How do I buy a probate estate?

You can purchase a property in probate through estate agents, who often manage probate sales. It’s important to conduct thorough land registry checks and verify any outstanding debts or mortgage balances tied to the property before proceeding.

4. Why should an individual mortgage a house in probate?

Mortgaging a probate property may help you:

• Replace an outstanding mortgage not in your name.
• Raise extra money through an equity release repayment plan.
• Settle outstanding bills or cover maintenance costs on the inherited property.

In uncertain times, seeking professional financial advice ensures you choose the simplest option and avoid common pitfalls related to inheritance matters.

5. How long does probate take?

Probate is often a lengthy process, typically lasting around six months, depending on complexities such as multiple beneficiaries or unresolved outstanding debts. During this period of time, a grant of administration or emergency grant may be necessary to access funds for immediate expenses.

6. What if I want to keep my mortgage?

You can keep the existing mortgage, but this requires meeting the lender’s affordability criteria and possibly undergoing new credit checks. Consulting with an experienced broker will help you explore suitable mortgage options based on your employment status, credit score, and disposable income.

7. What is the affordability test?

The affordability test involves mortgage lenders assessing your ability to meet monthly mortgage payments. They will review your income tax records, minimum income thresholds, and factors such as living costs, credit difficulties, and any previous credit incidents. This process helps determine if you’re eligible for a standard mortgage, interest-only mortgage, or more specialized products like a bridging finance solution.