Unit Trust Loans

What is a unit trust?

Unit trusts are different to discretionary trusts in that the trust issues units which then determine how the income from the trust is distributed by the trustee. The trust pays distributions to the unit holders in the proportion that they own the units. So in effect the unit holders are the beneficiaries of the trust.

For example if John has 60 units and Sarah has 40 units then John would receive 60% of the income and Sarah would receive 40% of the income of the unit trust.

In most cases the trustee’s powers are limited by the trust deed so that it does not have any discretion on how the income is to be distributed. Units can be owned by people, companies or by other trusts and there is often no limit on the number of unit holders. Unlike a discretionary trust, units can also be sold, transferred or even redeemed (purchased back by the trust).

How much can you borrow?

Standard loans (full doc): 95% of the property value.

Investment loans: 95% of the property value.

Low doc (no income evidence): 80% of the property value.

Discounts: Competitive professional package and basic loan discounts are available.

Note: Low doc unit trust loans are only available from a few lenders, please discuss with us before you begin looking to buy a property. Some lenders have restrictions on lending to unit trusts with a company as the trustee, but can accept trusts with a personal trustee.

Can I get the loan in my name?

When using a unit trust to buy a property you have the choice of putting the loan in your name (as the trustee / director of the trustee) or in the name of the trust itself. By setting up the loan in your name you may receive some tax benefits that are not available if the loan is in the trust. Please discuss this with a qualified accountant for more information.

The structure may look like this:

Director of the trustee company: Joe Bloggs
Borrower: Joe Bloggs
Mortgagor / property owner: Example Pty Ltd As Trustee For The Example Unit Trust
Guarantor: Example Pty Ltd As Trustee For The Example Unit Trust

The problem is that many lenders can’t setup the loan to be in your name with the property in the name of the trust! This is for a variety of reasons, normally because they either don’t understand the structure, their system will not allow it or their policy does not allow it!

The good news is that there are several lenders that can allow you to use this structure, and they all have very competitive interest rates! Please enquire online to discuss the structure of your finance with one of our mortgage brokers.

How do banks view unit trusts?

The majority of banks view unit trusts to be more difficult to finance. There are several banks that will lend to discretionary trusts but will not lend to unit trusts. This is for a number of reasons:

• The ATO has investigated some uses of unit trusts and found them to be in breach of tax legislation. Although most common uses of unit trusts are fine, some banks are concerned that their borrowers may be evading tax.
• The trust deed is more complicated and the bank needs more experienced staff to assess the document properly and confirm that the trust is allowed to borrow money.
• Many banks computer systems are not set up to process unit trust loans.
• Unit trust loans are less profitable for banks than normal home loans because of the additional paperwork. For this reason they avoid them altogether.

Don’t worry! There are lenders that can approve loans for unit trusts, you just need to apply with the right lender for your situation and trust type.

How can I get a unit trust home loan?

We can perform a comprehensive analysis of the various banks guidelines to determine which banks will accept your loan. We are specialist mortgage brokers and know how unit trusts work and which lenders can consider lending to them. We can even help with low doc unit trust loans in some situations.

Please enquire online and one of our brokers will give you a call to discuss your situation.