When you inherit a house with a mortgage, it can feel overwhelming. You’re dealing with the loss of a loved one and suddenly faced with property responsibilities.
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
Understanding Your Inheritance
Inheriting a house with a mortgage means you’re taking on both the property and its debt. As the new owner, you’ll be responsible for mortgage payments, even if you don’t live there. It’s vital to contact the mortgage lender straightaway to inform them of the situation.
Many lenders offer a grace period, giving you time to sort out the estate before payments are due. This breathing space can be invaluable as you decide what to do next.
What happens if you inherit a property with a mortgage?
Inheriting a property that still has a mortgage can be a bit more complicated than one that’s paid off.
First, who is responsible for the mortgage payments on an inherited property?
Whether you have inherited a house with equity or a property with a mortgage in the UK, the responsibility of making mortgage payments falls on you, even if you don’t live there. It’s important to contact the mortgage lender as soon as possible to notify them of the previous owner’s death. They might offer a grace period for mortgage repayments.
Now that you know you’re inheriting both the property and its associated debt, your next question might be, “How am I going to manage paying off this mortgage?”
Fortunately, the mortgage debt can be cleared using any of the following methods:
- Other cash and assets from the estate
- A life insurance policy
- Taking out a new mortgage in your name
- Securing a buy-to-let mortgage that is covered by rental income
- Selling the property and using the proceeds from the sale
Your Options
You have several choices when inheriting a mortgaged property:
- Keep the property and take over the mortgage payments
- Sell the property and use the proceeds to pay off the mortgage
- Rent out the property to cover mortgage payments
- Refinance the mortgage in your name
Each option has its pros and cons, so it’s worth considering your financial situation and long-term goals before deciding.
Inheriting a Mortgaged Property: A Guide for Brits
The first order of business should be to reach out to the mortgage lender. Inform them that the previous owner has, unfortunately, passed away and that you are the beneficiary set to inherit the property. Many lenders offer what’s known as a “grace period” – a temporary reprieve from making repayments. This breathing space typically lasts until the probate process is complete and the property’s ownership is officially transferred to your name.
During this interim, you can take stock of the situation and decide on the best course of action. Do you plan to keep the property and take over the mortgage payments? Or would you prefer to sell and settle the outstanding debt?
Don’t Forget the Fine Print
While you’re at it, reviewing the mortgage terms and conditions set forth by the lender is a jolly good idea.
These legal documents might contain handy nuggets of wisdom on the proper protocol when a borrower, sadly, kicks the bucket.
You could find valuable insights into what the lender expects from you, the inheritor, regarding future repayments.
Will they demand that you pick up where the previous owner left off? Given the circumstances, might they offer a bit of leeway?
Knowing the lay of the land can help you confidently plan your next moves. After all, the last thing you want is to find yourself in a spot of bother for unwittingly breaching the contract.
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.
Option 1: Settling the Mortgage with the Estate’s Coffers
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 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.
You should check your loved one’s will because it might say how they want the unpaid mortgage to be paid off. It might state that the mortgage should be paid using the money and other assets in the estate.
If so, the executors will need to pay the mortgage using the estate’s cash and assets before the property is given to the new owner.
If the will does not mention this, the new owner will be responsible for the mortgage repayments.
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.
Option 2: Check if the deceased had a life insurance policy
Your relative who passed away might have had a life insurance policy or mortgage death insurance that could cover the cost of the outstanding mortgage.
How do I trace a life insurance policy? If you’re unsure whether your relative had a life insurance policy, there are a few steps you can take.
First, check the person’s bank statements for standing orders or payments made to an insurance company.
If you don’t have access to their bank statements, you can contact the Unclaimed Assets Register (UAR) on 0333 000 0182. UAR helps you find any lost policies and connects you with the financial provider to claim the life insurance payout. There is a £25 fee for using this service.
Option 4: You can get a buy-to-let mortgage
You could talk to the mortgage lender about taking out a buy-to-let mortgage on your inherited property.
The income from renting out the inherited property can help repay the mortgage. Remember to declare any profits for tax purposes, as you must pay income tax on any profits over £1,000.
It may be more challenging to get a buy-to-let mortgage than a standard one, as assessments are usually stricter for prospective landlords. We recommend speaking with a fee-free mortgage broker to see if you would be eligible for a buy-to-let mortgage.
Option 5: Sell the property
If you want to avoid finding extra money each month for mortgage payments, selling the inherited property can be a good solution. The proceeds from the sale can be used to pay off the outstanding mortgage.
There are three main ways to sell an inherited property:
- Through a local estate agent – This method usually gets you the highest price for the property, but it can be slow and unpredictable. This might not be ideal if you need a quick sale to stop making monthly mortgage payments.
- Auctioning a house – Selling at auction provides a good balance between price and speed, typically getting you about 80% of the market value. Auction sales can usually be completed within 8 weeks.
- Using a cash house-buying company – This is the fastest way to sell the property, typically yielding about 70% of the market value, with the sale completed in as little as 2 weeks.
Dealing with the Mortgage
If you decide to keep the property, you’ll need to handle the mortgage. Here are some ways to do this:
- Use other assets from the estate to pay off the mortgage
- Take out a new mortgage in your name
- Consider a buy-to-let mortgage if you plan to rent out the property
Remember, if there’s a life insurance policy, it might cover some or all of the outstanding mortgage.
Tax Obligations
Inheriting a property can have tax consequences. You might need to pay:
Inheritance Tax: If the estate’s value exceeds £325,000
Capital Gains Tax: If you sell the property for more than its value at the time of inheritance
It’s wise to speak with a tax professional to understand your obligations fully.
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 – even if a beneficiary is living there.
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.
Tip: Don’t forget about ongoing costs
Beyond the mortgage, you’ll need to budget for property taxes, insurance, maintenance, and possibly utilities. These can add up quickly, so factor them into your decision-making process.
If you’re feeling unsure about what to do with your inherited property, why not get in touch with Property Saviour? We can offer expert advice tailored to your situation.
Probate & Property Transfer
Before you can do anything with the inherited property, you’ll need to go through probate. This legal process confirms the will’s validity and grants the executor the right to distribute the estate.
Once probate is complete, you can transfer the property into your name. This step is crucial if you plan to keep or remortgage the property.
Can I leave a mortgaged house in a Will?
You can include a property with remaining mortgage debt in your Will for a selected beneficiary.
It is essential to clearly state in your will whether you want the mortgage to be settled with funds and assets from the estate before passing it on to the chosen beneficiary.
What If There Are Multiple Beneficiaries?
If you’ve inherited the property with others, you’ll need to agree on what to do with it. Options include:
- Selling and splitting the proceeds
- One person buying out the others
- Keeping the property and sharing ownership
Whatever you decide, make sure to get the agreement in writing to avoid future disputes.
Renting Out the Inherited Property
Renting out the property can be a way to cover the mortgage payments and potentially earn some income. However, you’ll need to:
- Inform the mortgage lender and possibly switch to a buy-to-let mortgage
- Ensure the property meets all safety standards
- Register as a landlord and follow all relevant regulations
- Consider using a letting agent to manage the property
Selling the Inherited Property
If you decide to sell, you’ll need to:
- Clear out personal belongings
- Consider any necessary repairs or improvements
- Choose an estate agent or property buying company
- Set a realistic price based on current market conditions
Remember, Property Saviour can offer a quick, hassle-free sale if you’re looking to sell your inherited property quickly. We buy any house in any condition, so you don’t need to worry about repairs or renovations.
Do I have to pay the mortgage on an inherited property?
Yes, you’re responsible for mortgage payments once you inherit the property. However, you can use other assets from the estate or sell the property to cover the mortgage.
What happens if I can’t afford the mortgage payments on an inherited property?
If you can’t afford the payments, you might need to sell the property or rent it out to cover the costs. Alternatively, you could refinance the mortgage if your financial situation allows.
Can I refuse to inherit a property with a mortgage?
Yes, you can disclaim your inheritance if you don’t want to take on the property and its associated debt. However, this decision is irreversible, so consider it carefully. Why not sell it to us instead and donate the money to charity?
Do you pay inheritance tax on mortgaged property?
A mortgage is not considered as part of the estate when it comes to inheritance tax. The calculation of inheritance tax is based on the net inheritance. To determine the amount of inheritance tax owed, the executors must subtract the mortgage amount from the property’s value.
Can I sell a house I’ve inherited?
Yes, you can sell an inherited house once probate is complete. You might need to pay Capital Gains Tax if the property has increased in value since you inherited it.
Turn Your Property Headache into Cash: Property Saviour’s 10-Day Solution
Selling your home through traditional estate agents can be a frustrating experience. You’re often left waiting for months, dealing with endless viewings, and facing the uncertainty of whether a buyer will follow through. Auctions might seem like a quicker alternative, but they come with their own set of risks – you could end up selling for far less than you’d hoped, or not selling at all.
That’s where Property Saviour steps in. We offer a hassle-free way to sell your house quickly, with no estate agent fees, no lengthy chains, and no last-minute price reductions. Our process is straightforward and transparent – we make you a fair cash offer, and if you accept, we can complete the sale in as little as 10 days. No fuss, no stress, just a quick and certain sale.
Why not give us a ring today? Our friendly team is ready to chat about your property and provide a no-obligation cash offer. You’ve got nothing to lose, and potentially a great deal to gain. Let’s talk about how we can help you move forward with your plans, free from the headaches of traditional property sales.
Property Saviour Price Promise
- The price we’ll offer is the price that you will receive with no hidden deductions.
- Be careful with ‘cash buyers’ who require a valuation needed for a mortgage or bridging loan.
- These valuations or surveys result in delays and price reductions later on.
- We are cash buyers. There are no surveys.
- We always provide proof of funds with every formal offer issued.
We'll Pay £1,500 Towards Your Legal Fees
- No long exclusivity agreement to sign because we are the buyers.
- You are welcome to use your own solicitor.
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- We share our solicitor’s details and issue a Memorandum of Sale.
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