Inheriting a property with a mortgage is a bit more complex than inheriting one without. In this article we cover the main topics you need to consider if you find yourself in this position.

So firstly, who is responsible for paying the mortgage on a property you inherit?

Also if you have inherited a property without a mortgage, we have another guide you might find more useful here.

When you inherit a property with a mortgage in the UK, you will be responsible for the mortgage payments, even if you do not live at the property. You should contact the mortgage lender asap to inform them of the previous owner’s death, as they may have a grace period for mortgage repayments.

Now you know you will be inheriting the debt as well as the house, your next question is most likely “how on earth am I going to pay the mortgage off” The mortgage debt can be settled in any of the following ways:

Other cash and assets from the estate.
A life insurance policy.
New mortgage in your name.
Buy-to-let mortgage covered by rental income.
Selling the property and using the sales proceeds.

Let’s explore each of these options in more detail below…

We can also help if you're feeling overwhelmed or unsure about the best way to sell your inherited home. We understand it can be difficult to navigate the sale of an inherited property. That’s why we designed our quiz. It helps you discover alternative ways to sell based on your priorities, property, and more. Click the button below to get started…

Initial points to consider when you inherit a house with a mortgage

When you inherit a property with a mortgage, the mortgage repayments become your responsibility. You inherit the property along with any mortgage debt.

The first thing you should do when you become aware that you are inheriting a property with a mortgage is to call up the mortgage lender. You should explain that the previous property owner has passed away and that you will be inheriting the property.

A lot of mortgage lenders have what’s known as a “grace period”, meaning that you have a repayment holiday until probate is complete and the property has been transferred to you.

Probate: the process of administering a deceased person’s estate.

It is also worth checking the mortgage terms for that lender. They may include some useful information on what to do when a mortgage borrower passes and what they expect from you in terms of payments.

1. Mortgage balance covered by other cash and assets from the estate

You should refer to your loved one's will as it may set out how they wish for the outstanding mortgage to be repaid. It may specify that the mortgage be repaid using the cash and other assets left in the estate.

If this is the case, the executors will be responsible for settling the mortgage using the available cash and assets in the estate before the property is transferred to the new owner.

If not, the mortgage repayments will be the responsibility of the new owner.

Top tip for executors: a mortgage doesn’t count as part of the estate for inheritance tax purposes. Inheritance tax is calculated on the net inheritance, so make sure you deduct the amount of the mortgage from the value of the property.

2. Check if the deceased had a life insurance policy

Your relative that passed away may have taken out a life policy or some form of mortgage death insurance before they died which could be used to cover the cost of the outstanding mortgage debt.

How do I trace a life insurance policy?

There are a couple of things you can do if you don’t know whether your relative passed away with a life insurance policy in place.

The first place to start would be to check the person’s bank statements for standing orders or payments made to an insurance company.

If you do not have access to the person’s bank statements, you can contact the Unclaimed Assets Register (UAR) on 0333 000 0182. UAR helps you locate any lost policies and put you in touch with the financial provider so you can claim the life insurance pay-out. You will have to pay a £25 fee to use this service.

3. You get a new mortgage in your name

If you plan on keeping a property you have inherited which has an outstanding mortgage, you will need to speak with the mortgage lender about getting a new mortgage in your name.

You may struggle to pass the affordability tests if you already have a mortgage on another property. We would recommend that you speak with a mortgage broker to find the best lender and option for you.

4. You can get a buy-to-let mortgage

You could speak with the mortgage lender about the possibility of taking out a buy-to-let mortgage on the property you’ve inherited.

The income you receive from renting out the inherited property can help with the mortgage repayments. Make sure you remember to declare any profits for tax purposes, as you will need to pay income tax on any profits over £1,000.

You may face more challenges trying to take out a buy-to-let mortgage, over the standard mortgage, as assessments tend to be a lot stricter for prospective landlords. We would again recommend that you speak with a fee free mortgage broker to see if you would be eligible for a buy-to-let mortgage.

5. Sell the property

A good option that will avoid you having to find the additional cash each month to cover the mortgage payments would be to sell the property and use the sale proceeds to cover the outstanding mortgage debt.

There are three ways to sell an inherited property:

Via a local estate agent – this option is likely to get you the best price for the property but can be very slow and unpredictable. If you are looking to sell the house quickly to avoid making any monthly mortgage repayments, this might not be the best option for you.
Via auction – this option offers a good balance between price and speed and is likely to get you around 90% of the market value. A sale by auction can typically be wrapped up within 8 weeks.

What are my options if I can’t afford to pay the mortgage after death?

You also have the following options if you inherit a property with a mortgage debt and can’t afford to cover the mortgage:

Ask the mortgage lender for a payment holiday
Extend the term of the mortgage to decrease the monthly cost
Find a lender with a cheaper interest rate
Change from a repayment mortgage to an interest only mortgage

FAQs

1. Can I leave a mortgaged house in a will?

You can leave a property with outstanding mortgage debt in your will to a chosen beneficiary. You should specify in your will if it is your intention for the mortgage to be repaid using cash and other assets from the estate before being transferred to the chosen beneficiary.

2. What happens if I cannot afford to pay the mortgage payments?

Pete Mugleston, Managing Director at Online Mortgage Advisor, an FCA-Regulated online broker, confirms that “if you fall behind on the mortgage repayments, the house could eventually have to be repossessed to cover the debt of the deceased homeowner”.

We would recommend that you speak with a solicitor and the mortgage provider to try and come to a solution. Your best option might be to sell the property to release funds to pay off the mortgage.

3. If I inherit a house with a mortgage, do I have to pay it off?

Clarissa Landcastle from Howells Legal notes that “there is no legal obligation to continue making mortgage payments for a property”.

Although you cannot be forced to repay the mortgage, if you stop making payment the inherited property could eventually be repossessed. We would therefore recommend that you speak with a solicitor and mortgage advisor if you find yourself in this position.

4. Do you pay inheritance tax on mortgaged property?

A mortgage doesn’t count as part of the estate for inheritance tax purposes. Inheritance tax is calculated on the net inheritance. The executors will need to deduct the amount of the mortgage from the value of the property when calculating how much inheritance tax is due.

Guaranteed Rent from Stayful

If you've decided to rent out your inherited property, one option to consider is partnering with a property management company like Stayful.

Stayful offers a "Guaranteed Rent" program that can provide a steady and reliable stream of rental income, even during periods of vacancy or unexpected tenant turnover.

Benefits

With the Stayful Guaranteed Rent program, the company will pay you a fixed monthly rent, regardless of whether the property is occupied or not.

This can provide a level of financial stability and predictability that can be particularly valuable when managing an inherited property, as it eliminates the uncertainty and potential headaches associated with finding and retaining reliable tenants.

Renting Your Inherited property on Airbnb through Stayful

Another option for generating income from your inherited property is to list it as a vacation rental on platforms like Airbnb. Stayful can help facilitate this process by managing the entire Airbnb rental experience on your behalf.

Stayful's Airbnb management services include creating an attractive and compelling listing, pricing the property competitively, handling guest communications and bookings, and ensuring the property is cleaned and prepared for each new arrival.

They also handle the financial aspects, such as collecting rental payments and remitting the proceeds to you on a regular basis.

Renting your inherited property as a vacation rental can be a lucrative option, particularly if the property is located in a desirable tourist destination.

It's important to carefully consider the potential challenges, such as the need for more frequent cleaning and maintenance, the potential for damage or wear and tear, and the potential impact on the local community. Stayful can help navigate these considerations and ensure that your Airbnb rental is a seamless and profitable experience.

Free Airbnb Income Calculator

Find out how much your inherited property could make on Airbnb using our free calculator here.

What To Do If You Inherit a House With a Mortgage