Finding a Probate Mortgage
Probate is the legal process of certifying a will, and you may have inherited a property that is going through the probate process.
Reasons for remortgage a property in probate include:
- Remortgaging into your name as the new owner.
- Raising capital on an unencumbered property.
- Using the mortgage to purchase an estate being sold through probate.
There are always multiple options for managing a probate property - and if you have a cash inheritance as well as the home, you can use those funds to repay an existing mortgage, as an investment, or as a deposit towards a new, more competitive mortgage.
Probate can take around six months, so the process can require patience.
Business finance broker regularly works with clients who have inherited property, and there are other important factors to consider:
- Inheritance taxes payable.
- How probate will impact the property value.
- Whether you are inheriting a mortgage liability.
- Whether it is worth remortgaging the inherited home.
- Whether there is more than one beneficiary.
What are the Inheritance Tax Considerations on an Inherited Property Mortgage?
Inheritance tax can delay the remortgaging process, and the executors of the will can often delay proceedings while they work through the legal system.
Examples include:
- Collecting deeds and mortgage documents.
- Investigating life insurance policies.
- Identifying existing secured lending.
- Valuing the property through a surveyor.
It is not unusual for an inherited property to be left empty while these tasks take place, and so vacant property insurance can be a wise precaution.
Inheritance tax is, currently, charged at 40% on estates inherited worth more than £325,000, or more than £650,000 in some scenarios. Given this high tax rate, it is often sensible to have a mortgage on the property from a tax-efficiency perspective.
As an illustration:
- You have a £400,000 property with a 20% mortgage outstanding. The inheritance value is, therefore, £320,000, and no tax is payable.
- If you took the £80,000 cash from the mortgage and gifted it, provided you live for seven years, there is no tax payable on that element either.
Parents cannot gift their children property to avoid inheritance tax, and you cannot buy it from them either, as the same threshold applies to properties even if your parents remain alive and well.