Transferring Mortgaged Properties

David Baker Wealthtime

August 2009

Rules are rules and exceptions to them generally create anomalies.

Take the current situation with mortgaged properties being transferred from one Sipp Provider to another. No problem – from H M Revenue & Customs’ viewpoint anyway – as long as the outstanding borrowing is less than 50% of fund value – that comes within the A Day rules, always remembering that the property may need to be valued at the time of the transfer to ensure the limit is not breached, particularly with today’s depressed property values. But what if the mortgage is over 50% of value? This used to be prohibited by H M Revenue & Customs. Their position is not now so rigid but it is nevertheless still unsatisfactory.

The A Day transitional provisions enabled borrowing in excess of 50% of fund value taken out before A Day to remain, as long as it is not increased and the existing loan continued. That meant you couldn’t change lenders so you could be stuck with the same lender for potentially many years regardless of the interest rate being charged. If for example a fixed rate deal came to an end and was replaced by a higher variable rate, the SIPP client could not shop around to get better terms without reducing the mortgage so was forced to accept whatever that particular lender was prepared to offer.

That was clearly unfair and H M Revenue & Customs have accepted that a new lender can be substituted as long as the amount of the borrowing and the remaining term are the same as (or less than) the original loan. Now things have moved a stage further with H M Revenue & Customs’ somewhat grudging acceptance in principle that a loan of more than 50% of fund value can be transferred to another SIPP. But there is apparently an important restriction – the lender must remain the same. This seems illogical – if an existing SIPP is now able to take out a replacement loan with a new lender, why should that facility not be provided on a transfer as long as the SIPP Provider can confirm that the amount and terms are the same as the original mortgage except of course for the rate of interest. After all, once the existing loan was transferred to a new SIPP, there is nothing to stop the SIPP then substituting this for a loan from another lender.

A “new loan”, in the sense that the lender may technically regard it as such, will in any case often be deemed necessary by an existing lender on a transfer because the legal borrower under the mortgage will change to the new SIPP Trustee whether or not the member is also a joint trustee. Although it may not be legally essential, most lenders will therefore require a new mortgage to be taken out in these circumstances – it is just the way they like to do things. I have even known there to be a demand for a further arrangement fee. Indeed, in today’s credit crunch times where lenders are looking to secure repayment sooner rather than later, it is quite possible that an existing lender could refuse to grant a new mortgage or perhaps use it as an excuse to raise the interest rate. This would in practice leave the member unable to transfer to a new Provider under H M Revenue & Customs’ present approach, which is manifestly unfair. No one is trying to obtain an unfair advantage. In the same way a client should not be forced to stay with one lender if better terms can be obtained elsewhere, it should not be an impediment to changing SIPP Provider if a client, for whatever reason, is dissatisfied with the present one. It is similar in some ways to H M Revenue & Customs’ original position on income drawdown – you couldn’t change Provider once you had gone into drawdown which took quite a long time to be resolved. Let’s hope the present situation is sorted out as soon as possible. The client should no more be tied to one mortgage provider than they should to one SIPP Provider. This artificial restriction should be removed.

The present H M Revenue & Customs approach of requiring each case to be considered on its merits for even this limited right to transfer is also unfortunate. It leads to too much uncertainty and subjectivity and is quite unnecessary. The basic principle that as long as the amount and terms are the same, a transfer with borrowing in excess of 50% of fund value is permitted regardless of who is lending should be clearly established now.



This article represents the personal views of David Baker and is not intended as a substitute for professional financial advice.


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