Who Is Responsible For Mortgage Payments After Death?
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When someone dies, their debts – outstanding mortgages, credit card balances, personal loans, or car finance, don’t simply vanish. Instead, they become the responsibility of the executor (if there is a will) or administrator (if there is no will) of the estate. These individuals must handle and settle these debts before any assets are distributed to beneficiaries.
According to Money Helper, only around 1 in 20 estates will be required to pay Inheritance Tax, although we expect this to increase in the coming years as house prices continue to rise, and the tax threshold remains frozen at £325,000.
Within most estates, there should be enough liquid assets (money) to cover the outstanding debts & the Inheritance Tax due, but if there isn’t, the executor or administrator has the power to find funding.
What happens to debt when someone dies?
Debts are initially paid by the estate’s cash flow, once probate has been granted, any assets like property, investments or belongings can be liquidated. But, if the estate does not have enough funds to cover all the debts before probate, they are paid in the following order:
Secured debts (mortgages, car loans, etc)
Funeral costs & probate expenses
Unsecured debts (credit cards, personal loans, etc)
If the estate, including any property, has no value then the remaining assets will be written off completely. Leaving the debts to die, along with the deceased.
What happens to outstanding mortgages?
A mortgage is not tied to the person, but tied to the property it was secured against. Therefore, the mortgage lender (residential or Buy To Let) has the right to recover the outstanding balance – even if the original owner has died.
In which case, the executor of the estate must settle the outstanding mortgage using funds within the estate, including free cash, selling assets (like property) and using life insurance payouts (if applicable):
Joint tenancy
If the property was held within a joint tenancy, where each co-owner has a share of the property, the surviving borrower(s) will become responsible for the repayments. But, they will need to prove to the mortgage lender that they have the ‘financial capacity’ to make the payments.
Tenancy in common
If the property was held within tenancy in common, then the remaining share is passed into the estate and therefore is the responsibility of the executor. In the will, it should state who will become responsible for the share of property – but it can get a little complicated if the executor needs to sell the share to pay off other debts.
Life insurance
If there was a life insurance policy in place to cover the mortgage temporarily, the payout can be used to tackle the debt, which can reduce the need to sell the property. But, if the estate lacks sufficient funds, or the inheritors cannot maintain repayments, the mortgage lender may force the sale of the house to recoup the outstanding balance.
How can executors pay Inheritance Tax?
This is often one of the tricky bits of paying off an estate, because Inheritance Tax must be paid, before probate can be granted, and probate must be granted, before they can sell a property. But, the funds from the sale are usually needed to cover Inheritance Tax.
So, if there aren’t enough funds within the estate to pay Inheritance Tax within 6 months of the date of death, then the executor or administrator must find funding from elsewhere.
Fortunately, they have the legal power to acquire an executor or bridging loan, which can provide much needed short term funding to cover these expenses until probate has been granted:
Executor loans
Also known as probate loans, or inheritance loans, are designed to be able to give executors access to funds before probate has been granted. These loans can be used to pay for:
Inheritance Tax
Funeral costs
Solicitor fees
Probate expenses
Property repairs
Executors can apply for the loans, without consulting beneficiaries – but this may leave them open to disputes from the beneficiaries later in the process, if things go awry. Another benefit of executor loans is that the interest can be deferred until after the estate is settled, and loan can be repaid from the proceeds of the estate once assets are liquidated.
Bridging loans
Bridging loans offer another option for covering Inheritance Tax, and are secured against property, either from the estate or the executor’s personal asset. They can be much more flexible than executor loans, but come with much higher interest rates.
How we can help
Here at The Property Buying Company, as one of the UK’s leading house selling solutions groups, we have a multitude of selling & guidance services available, be that for beneficiaries or executors.
In terms of selling, we can help both parties sell their properties on average in 91 days, and help them achieve around 81.77% of the market value. All while covering their legal and selling fees, meaning the price we offer is the price you receive.
See our Venn Diagram below:
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Our services don’t just stop at being able to buy properties however, we also know the inheritance and probate service like the back of our hands, and can offer guidance throughout.
It doesn’t matter if you’re an executor at the beginning of the probate process, or a beneficiary who has just inherited the property and is looking at their options, we will always make the best recommendations for your situation.
Here’s how we can help:
Beneficiaries
Our inheritance guidance is from start to finish, meaning you can inquire about selling your property, even before you have actually inherited it. We can provide you with an initial ball park cash offer, and suggest the best avenue for your sale – we have our cash buying business, as well as an online estate agency (which can get you higher returns).
If you choose our cash offering, then we can buy directly from you, in 7 days, 91 days or 8 months - the process is entirely tailored to you, and how long you need to sell.
We buy properties “as is”, which means you don’t need to clear it, keep it clean for viewings, or even do any renovations. And, if it is tenanted, then we can buy with tenants in situ - so you don’t have to do anything (other than tell them you’re selling).
And, the best bit? We can work with you to line up the house purchase, for the day, or week that you inherit it, helping you to move on quicker and more efficiently than our estate agent counterparts.
Executors
We know the probate process can take a long time, but we would rather work with you throughout, so you know we’re serious about buying the property. We have a panel of solicitors across the country, and will work with them to progress your probate & offer guidance when you need it.
Through the investing arm of our business, we work very closely with some of the biggest bridge and executor loan lenders, and can recommend them to you if that is an avenue you are looking to explore.
What's more, is if at any point you are worried about, or are facing disputes, we can also act as mediators between you and the aggrieved party.
Obviously, as an executor using our service, you will probably be looking for a quick house sale route, which is why we would recommend choosing our cash buying or property auction route - both of which can be organised to complete on the day, week, or month of probate being granted.
If this sounds like something you’d be interested in exploring, then please fill out our postcode form below - and we’ll be in touch within 24 hours to discuss your initial cash offer.
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