Inheriting a house with a mortgage can be a huge strain on anyone. You’ve just had someone you love pass away, and now you have the added stress of figuring out what to do with the property.
There will be lots of questions rushing through your mind, such as “How do you take over a mortgage after death?” and “Should I sell the inherited house?”.
The first thing you need to know is that the mortgage will still need to be paid even if you do not live there. If you do not keep up with repayments, your inherited house could be repossessed. The good news is that you do not need to spend tens of thousands of pounds refurbishing a tired property. In fact, you can sell a house in ‘as is’ condition.
In our guide, we will answer several questions, including:
- Can you inherit a house that still has a mortgage?
- Can a mortgage stay in a deceased person’s name?
- Can a mortgage be transferred after death?
- Can you transfer ownership of a house with a mortgage?
- Do you have to pay capital gains tax on inherited property in UK?
- Do you pay inheritance tax on a house with a mortgage?
If there is a question that we have missed, you can email us and we will answer it for you.
Our guide will explore ways to pay your mortgage and the possibility of applying for a mortgage holiday until you sort out your financial affairs.
Table of Contents
What happens if you inherit a property with a mortgage?
The first thing you need to do is to find the Will to establish your legal relationship with the property. Did the deceased leave you as a beneficiary in their Will? A named beneficiary has legal rights to the share of the deceased’s estate once it has been administered. You could also be a named Executor, meaning you are responsible for sorting out their affairs.
The Will could be left in the house, with their solicitors, in a safety deposit box or could be registered with the Nationals Wills Register.
In a dying intestate situation where there is no Will, the next of kin will have to apply for a grant of administration to prove that they have the legal rights to administer the estate. A court will decide on who inherits how much.
You have three options when you inherit a house with a mortgage. You will need to pick the one that works the best for you:
- Pay the mortgage yourself. This is a straightforward option if you are the sole beneficiaries; however, things become tricky if siblings have inherited a house with a mortgage. It can be difficult to agree on which beneficiary will live in the inherited house and for how long.
- If you’re thinking of potentially keeping the house, then you need to raise funds from the inherited estate by using any savings to pay off the mortgage, sell car(s), any art, jewellery or any shares you have inherited. This is a short-term solution as you are likely to run out of funds.
If the bank agrees, you can re-mortgage the house and transfer it to your name. This option requires you to be the sole beneficiary. What if you are inheriting half a house?
- You can sell it to pay off the mortgage and keep the rest of the money as your inheritance. This is the most logical option if the inherited property is to be split between siblings.
It also gives you the opportunity to pay off your own mortgage balance, perhaps take that dream holiday, help your children get on the property ladder or take an early retirement from work. We will show you how you can sell your inherited property in its current condition without doing any refurbishment.
It is always worth checking if the deceased had life insurance as this can pay off the mortgage in full and assist with funeral costs.
Before we present you with our guide, let us answer some of your burning questions first.
What happens if you inherit a house without a mortgage?
You are very lucky if you inherited a house with no mortgage in the UK. You are wondering, ‘I inherited a house; how do I put it in my name?”. The great news is that you have options:
- As a sole beneficiary, you can rent out your inherited property or sell it and cash in on your inheritance. If you decide to rent the property, any rental income is subject to income tax. You will have legal obligations as a landlord to comply with.
- Because you are the sole beneficiary, you can also consider moving into the property whilst you arrange for the legal transfer of your inherited property into your name.
- You can read more about what to do if you have inherited a property with your siblings.
What happens to a house with a mortgage when the owner dies?
Firstly, it is the responsibility of the Executor to inform the mortgage lender of the death. People often ask us, “Can you keep a mortgage in a dead person’s name?” the answer is that mortgages are not transferrable and can only be issued to a natural person.
So, what happens to a mortgage when the owner dies? It depends on what it says in the Will. Who are the beneficiaries? If the sole beneficiary is the surviving spouse, then he/she has inherited the house. The property must be sold to settle the estate if there are multiple beneficiaries.
What happens if my husband died, and my name is not on the mortgage?
- The Executor will have to apply for a grant of probate. You will have to inform the mortgage lender of the death of your spouse. You will then have to register the death by filling in the form DJP and providing an official copy of the death certificate. If you are the only beneficiary, then the lender may allow the transfer of the mortgage to your name – subject to your affordability. However, if there are multiple beneficiaries, such as siblings, or you can’t afford to take over mortgage payments, then you will have to sell the inherited house and buy another property.
- If you and your deceased spouse were joint owners of the property and there is no mortgage, then a probate is not required to deal with the property but may be needed if the deceased’s estate requires it.
- If the mortgage is in joint names, then you will need to inform the lender of a change of circumstances. The lender may allow you to transfer the mortgage in your name only, subject to their affordability checks. The property will automatically transfer to you as a surviving spouse, but please check this with the Land Registry.
What are your options if you have inherited a house with a mortgage?
Read through our guide on inheriting a house with a mortgage and figure out which option works best for you:
- Pay the mortgage yourself
- Raise funds from the deceased’s estate to pay the mortgage
- Sell the inherited property, pay off the mortgage, pay taxes, settle probate bills and distribute the cash to all the beneficiaries, as per the Will.
Option one: You can pay the mortgage
Well, your first option is to take on the mortgage payments yourself. If you have the spare cash, you could pay it off in one go.
It may also be that the recently deceased had life insurance, which could mean you receive a settlement. If this happens, you could use that money to pay off some or all of the mortgage.
Your first step is to contact the bank. You can find out the details of the lender by downloading a copy of the Land Registry’s Title Register.
Check when the next mortgage payment is due. If two or more payments are missed, the bank can start repossession proceedings, and you could lose the inherited property. The bank is likely to give you some time to sell the property in order to pay off the mortgage balance.
Option two: The estate can pay the mortgage
Inheriting a house with a mortgage can be a burden, but the load can be made much lighter if the mortgage is paid off by the estate.
With this option, the deceased’s assets are sold off, and the mortgage repayments are paid with the money collected. It’s a fantastic option if you have been left with substantial savings or expensive assets that can be sold.
However, there is a catch. It needs to be specifically stated in the Will that the estate will be used to pay off the mortgage and if the bank agrees. Without the go-ahead, you will need to choose one of the other options available to you.
Option three: You can sell the house
It may be that you do not want to keep the house — some people can’t afford to keep the house, while others see it as too much of a burden. Whatever you decide is up to you, but the mortgage will still need to be paid off.
If you decide to sell an inherited house, then you can use the money to pay off the mortgage, pay any taxes due, settle outstanding probate bills, and the outstanding balance can be shared between beneficiaries.
Selling the house quickly for cash could be beneficial for you in this situation. If you can’t take on the financial burden of another house, selling the inherited house for cash reduces hidden costs such as council tax bills, utilities and empty property insurance. Furthermore, empty properties attract squatters or criminals looking for an easy target.
Property Saviour will guarantee to buy your empty probate property, no matter what state it has been left in. We promise a fair cash offer for a guaranteed quick sale and can give you a cash advance to help you clear outstanding bills before we complete.
Our average completion time is just 10 days, plus you will get a daily or weekly update on your property sale. We will also pay for your legal fees of up to £1,500.
Do you have to pay stamp duty on inherited property?
Stamp duty land tax is a UK property tax payable when you purchase a property or land. The good news is that it does not apply to inherited property. However, you may be liable to pay inherited or capital gains taxes.
How much capital gains tax is there on an inherited property?
Let’s say that you have decided to rent your inherited property instead of selling it, and a few years later, you have now decided to sell the property. It will have risen in value, and therefore you will be liable to capital gains tax.
The amount payable will be dependent on your income and your circumstances. Your accountant will be best placed to advise you.
Inheriting a house with a mortgage: what next?
If you are inheriting a house that is paid off already then life is a bit easier, but if you are inheriting a house with a mortgage, it becomes a bit more complicated. These are important points to remember:
- A mortgage lender is likely to give you a grace period to settle the mortgage payment.
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Time is of the essence, the longer it takes to sell the inherited property the higher the bills will be, such as empty property insurance, mortgage interest and charges, council tax for empty property and standing charges for utilities.
- If property is not registered, it may need to be registered before it can be sold on.
Property Saviour can help you by making you a cash offer with no deductions, paying your legal fees and offering you a free house clearance service. The sale can be concluded within 10 days or quicker.
Why not give us a call to see how much your inherited property is worth?
