Can I Leave a Mortgaged House in My Will?

There is nothing stopping you from leaving a house that has a mortgage on it to a beneficiary in your will, whether that is a specific gift to one person or as part of the residue of your estate shared between several people. The existence of a mortgage does not change who can inherit the property; it changes what they inherit along with it.

What you do need to think about is whether the beneficiary receives the property together with the outstanding mortgage debt attached to it, or whether you want the debt paid off first so they receive it free of the loan.

Under section 35 of the Administration of Estates Act 1925, a property that is subject to a mortgage normally passes to whoever inherits it 'subject to' that mortgage. This means that unless your will says otherwise, the beneficiary takes on the responsibility for continuing to pay it, or for repaying it in full, and the debt is not automatically cleared out of the rest of your estate simply because the property was left as a gift.

This default position often surprises people, who assume that leaving 'the house' to someone means they receive it free of any debt, when in fact the standard legal position is the opposite unless you specifically instruct otherwise.

If you want a beneficiary to inherit your property mortgage-free, your will needs to say so clearly, typically with a direction that any outstanding mortgage on the property should be paid off from your general estate, or from a specific fund, before the property is transferred to the beneficiary. This is sometimes referred to as the mortgage being paid 'out of the residue' rather than remaining attached to the property.

Whichever approach you choose, it is worth making the intention explicit rather than leaving it to be assumed, since the default rule under section 35 will otherwise apply automatically.

Many mortgages are linked to a life insurance policy or dedicated mortgage protection cover, which can pay off some or all of the balance on death. Where this is in place and adequate, it effectively achieves the same result as directing the estate to pay off the mortgage, without needing to use other estate assets, since the policy proceeds are used to clear the loan directly.

It is worth checking that any cover you have is still sufficient for the current mortgage balance, especially if you have remortgaged, borrowed more, or extended the mortgage term since the policy was taken out, since a mismatch can leave a shortfall that your will's instructions then need to address.

Think about who you want to inherit the mortgaged property, whether they would be able to afford to take over or continue the mortgage if the debt passes with it, and whether it would be fairer to other beneficiaries for the mortgage to be paid off from the residue rather than reducing what one specific beneficiary receives. These decisions interact with the rest of your estate plan, so it helps to consider them together rather than in isolation.

My Posh Will is an online guided will service for England and Wales that helps you record clear, specific instructions about mortgaged property. A single will costs £69 and mirror wills cost £89, both one-off payments with lifetime access, and most people complete the process in around ten minutes, with instructions on signing and witnessing included.