Last reviewed on 25th August 2023 by Martin Alexander (Mortgage Advisor)

Getting a mortgage on a property that you’ve recently inherited through probate can seem confusing. The probate procedure itself can be a lengthy process and usually takes up to half a year, even longer in some circumstances. Once probate has been finalised, you may be left with property and could be wondering what your options are as a beneficiary.

Common reasons for getting a mortgage on a probate property involve:

• Replacing the current mortgage with a new mortgage in your own name
• Releasing equity from the property
• Purchasing a probate property using a mortgage
• Replacing the existing residential mortgage with a buy to let mortgage

As well as inheriting a property, you may have also inherited funds as part of the estate. It’s common for beneficiaries to utilise the funds towards purchasing either a home or an investment property. Our advisors specialise in situations that involve probate and inheritance. You can make an enquiry below to get started.

Should I get a mortgage on an inherited property?

If you’ve recently inherited a property through probate, you may want to explore your options. For instance, if the property is mortgage-free, you could decide to take out a mortgage with the aim of releasing equity. If you are looking to do this, speak to an advisor who can assess your affordability and the types of mortgage rates you’ll be eligible for.

You’ll also want to book a valuation with a local estate agent so you’ll have an approximate value to work from. That said, a valuation may have already been carried out as part of the probate when valuing the estate. It’s important to understand that a remortgage will incur an outgoing cost each month as part of the mortgage arrangement.

If you already have a mortgage, multiple outgoings can soon add up. As a result, be sure that you’re ready for the additional expense and have a plan on how you’ll fund the new mortgage. An advisor can also assess your income to ensure that getting a new mortgage is a viable option.

If the inherited property already has an existing mortgage, as a beneficiary, you’ll need to place the mortgage in your own name. Depending on the existing lender, the rates may remain the same or you could try and negotiate an entirely different deal. Sticking with the same lender may not give you the most competitive rate, so it pays to shop around.

You can view the latest mortgage rates here.

Speak to an advisor who can check the best deals available, as you could save a lot of money in the long run. Our advisors can check the entire market to make sure you’re getting the best rates.

Can I rent out a property I’ve inherited through probate?

If you have no plans on living in the property yourself, you could decide to rent it out. Again, if the property is mortgage-free, you could release some equity. This can be very beneficial, especially if you need funds to refurbish the property. Nonetheless, you’d still want to proceed with caution.

If the property is really run down, then certain lenders may refuse to lend. You may need a specialist form of finance to refurbish the property, such as bridging finance. Once the property is refurbished, you can then remortgage to pay the bridging loan back. This is of course hypothetical so please consult an advisor before you decide to do anything.

If the property has an existing residential mortgage, you’ll need to apply for a buy to let mortgage. Even if the property has an existing buy to let mortgage, you’ll still need to place the mortgage in your name.

Buy to let mortgages are assessed in a completely different way from residential mortgages. Some lenders don’t base the assessment on the income of individuals and will focus the application on the potential rental income of the property. Most lenders require the rental income to cover 125% – 145% of the mortgage offered. As a result, be sure to check the rent your property is likely to achieve.

Things to consider as a new landlord

If you do intend to rent the property, it’s important to understand your legal duties as a landlord. There’s been a lot of recent legislation that landlords must adhere to. For instance, making sure the property has an EPC (energy performance certificate), gas safety certificate, and smoke alarms on each floor.

This is just a small example of your legal duties as a landlord. You’ll also have to make sure that your tenant’s deposit is placed in a protected scheme. For new landlords, this can be overwhelming so you may want to consult a letting agent to handle all of this for you.

Many landlords choose interest-only mortgages instead of repayment mortgages. This is so that monthly mortgage payments remain low. This enables landlords a better cash flow as they profit more each month.

The downside of having an interest-only mortgage is that at the end of the term, you won’t own the property outright. This is because you’ll only be making payments towards the interest of the loan and not the actual loan itself. When the mortgage term ends, landlords usually sell the property to settle the balance.

From a financial perspective, you should also consider whether or not you’d be able to afford the mortgage if the property was empty and had no rental income. Although lenders do factor this into their own assessments, it’s also advised to think about this yourself.

Will a new mortgage affect inheritance tax?

Delays can sometimes arise as a result of outstanding inheritance tax. If you’ve inherited the property through probate, then you should have already been informed of your duties in relation to inheritance tax.

The details are checked by the executors of the will, to ensure everything is done in the correct manner. For instance, if the deceased owner had life insurance, it may continue to cover the mortgage for a set period of time.

Inheritance tax is currently charged at 40% if the estate is valued at more than £325k. This figure could rise to £650k on the second death of a couple who are married or in a civil partnership. Properties also can’t be gifted or sold at reduced rates to family members in order to avoid inheritance tax.

If you’re considering selling the property, you may benefit from an emergency grant of probate. This allows beneficiaries to sell the property after 14 days.

What if there are multiple beneficiaries involved?

If there are multiple beneficiaries involved with a property, it can get confusing. The process becomes a lot easier if one benefactor has agreed to buy the rest of the beneficiaries out. An advisor would then liaise with the current lender ensuring that the mortgage and ownership would be placed in the new owner’s name.

If multiple beneficiaries wish to retain ownership, then it can be more difficult to get a mortgage. This is because not every lender will entertain such arrangements. Only a handful of lenders will agree to multiple borrowers with the maximum usually being four people.

Mortgages that involve joint ownership are usually geared toward two owners. Having three or four owners makes things a lot more difficult. That said, it’s still possible to get a mortgage for up to four owners. Having an advisor on board can save you a lot of time and frustration.

Applying directly with a lender without understanding their criteria could result in a declined application. This will only restrict your future chances of gaining mortgage approval. You can make an enquiry with an advisor below, who will discuss your current situation and the options available to you.