When you lose someone that was close to you, it can be a very difficult period. Not only are you dealing with the emotional challenge of living without that person, but you may also face new mortgage repayments that have become your responsibility.
Unfortunately, no matter how upsetting the situation might be, your loved one’s mortgage payments still need to be covered. How you can achieve this will vary on a case-by-case basis, depending on your relationship to the deceased, whether they owned the mortgage jointly with anyone else, and what the lender permits you to do.
Keep in mind that mortgage lenders are people too, and will sometimes put a brief hold on repaying mortgage debt while you are mourning. This can give you time to get your affairs in order at your own pace.
In the blog below, we’ve looked in-depth at what happens to a mortgage when someone dies.
Lender requirements
Even though you are going through a difficult time, the mortgage lender still has the right to demand that the full outstanding mortgage be paid. Some lenders will respect your period of mourning, and not ask for the payments straight away, but this is not always the case.
If you are unable to gather enough funds to pay off the remainder of the mortgage, the lender might demand that you sell the property, so that any outstanding debt can be repaid to them.
Keeping a home if you have a joint mortgage
It is not uncommon for two people to own a house in a joint mortgage. There are two ways that this can be done: either as a joint tenancy, or a tenancy in common. Plenty of married couples opt for a joint mortgage if they have bought the house together.
When someone passes away, and they own their property in a joint tenancy, then the survivor automatically inherits the house. This person will then become solely responsible for paying off the mortgage. In this situation, the survivor may decide to sell the house, because they cannot afford the mortgage repayments on their own. This is especially the case if the person that passed away did not have life insurance.
Alternatively, if the house is owned as a tenancy in common, then the share of the property that is owned by the deceased passes under the terms of their Will – if they have one – or under the intestacy rules.
Keeping an inherited property
If your loved one who has passed away had a life insurance policy, then you may receive a payment that will help you to pay off the debts. Those who choose to take a property on and not sell, whether they are living in it themselves or letting it, will need to keep up with monthly mortgage payments. This will usually happen after the house has been remortgaged.
Keeping a home if there was no will
In the event that there is no Will to determine who receives the inherited property, legal procedure will determine the outcome. Often, the home is passed to a surviving spouse, partner or child.
Remortgaging an inherited property
If you are unable to afford the pre-existing mortgage on an inherited property, you could choose to remortgage it in your name. This can enable the lender to offer you new terms that are more affordable. Keep in mind that you will still be required to meet the lender’s eligibility requirements surrounding income, credit score, age and a few other criteria.
Alternatively, you may wish to switch to a new lender altogether. By getting in contact with a mortgage broker, you’ll be able to assess where you can find the best possible terms.
Buying others out of an inherited house
When you inherit a house along with other people – for example, you and your siblings have received it from a parent – you will need to decide what happens with the property. Sometimes, your siblings might want to sell the house, while you may want to retain ownership of it.
In this instance, it is up to you to find enough funds to buy out their share in the house, so you can then own it outright. You will also usually need a mortgage broker to verify that you can afford to take on the mortgage without the co-owners, and to help you put your mortgage application together for the lender.
Inheritance tax paid on an inherited property
Inheritance tax has to be paid on any amount over £325,000. In the UK, the inheritance tax rate is currently 40%.
You should keep in mind that any existing unpaid debt takes away from the overall amount of the estate – so, if you have a £600,000 property but there is £300,000 remaining on the mortgage, this would take the total estate worth to £300,000.
It is highly recommended that you get independent tax advice from a specialist if you are concerned about inheritance tax, or want to reduce the amount that you pay.
Capital Gains When Selling an Inherited Property
When you inherit a house, you should also give consideration to Capital Gains tax, in case you decide to eventually sell the property. Currently in the UK, the rate of CGT is 28% for those who earn over £50,270, and 18% for those who earn below that figure.
If you move into the house for a period before selling it, then the Capital Gains Tax is calculated between its value at probate versus the value when you eventually decide to sell it. For example, if the house you inherit is valued at £500,000 during probate, but you sell it for £550,000 further down the line, then only £50,000 will have Capital Gains Tax applied.
If you have inherited a property but can’t afford your mortgage, then click on the link to read our article about how the government can help. You can also contact us if you want to sell an inherited house, as our cash buying service can make this quick and convenient for you.
