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Unit Trust Loans

Do you want to invest in the property market? You may find that obtaining finance for a unit trust is more difficult than expected.

Not all banks view trust loans the same way. You can borrow more at a better interest rate by choosing the right bank!

How much can you borrow?

  • 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.

Low doc unit trust loans are only available from a few lenders. Please discuss with us before looking to buy property.

To get the best loan package around for your unit trust, call us on 1300 889 743 or enquire online today. Our expert mortgage brokers know how to get tough loans approved!

What if a company is the trustee?

Some lenders have restrictions on lending to unit trusts with a company as the trustee, but can accept trusts with a personal trustee.

It largely depends on the lender that you apply with.

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.

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 because they either don’t understand the structure, their system will not allow it or their policy does not allow it!

Which banks will 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!

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.

To apply for a trust loan in your name, please enquire online or contact us on 1300 889 743 to discuss the structure of your finance with one of our mortgage brokers.

How will the trust loan be structured?

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

Or alternatively the loan can be set up with the company as trustee for the trust as the borrower.

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

Some lenders do not accept the first structure which has the individual as the borrower. All lenders that lend to unit trusts will accept the second structure. We will ask your accountant prior to submitting your application to the bank.

What if a SMSF owns the units of my trust?

This structure is complex and almost all banks do not accept it.

There are no standard residential lenders that can help if two separate super funds own units in the trust.

However, if just one SMSF owns units in your trust and the beneficiaries of the SMSF are the same as the directors of the trustee company of the unit trust, there is a benefit for the guarantors of the loan. In this case, we can help you to get approval.

Only one of our lenders can assist with this structure. Please call us on 1300 889 743 or enquire online to talk to one of our mortgage brokers to find out which lender can help you get approval.

How do banks view unit trusts?

The majority of banks have very strict lending policies in relation to unit trusts. There are several banks that will lend to discretionary trusts but will not lend to unit trusts.

This may be because:

  • 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.

To speak to a mortgage broker who specialises in unit trust loans please call us on 1300 889 743 or enquire online today!

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 of units that they own. So in effect, the unit holders are the beneficiaries of the trust.

What does a unit trust look like?

A typical unit trust may be set up in the following way:

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

In most cases, the trustee’s powers are limited by the trust deed so that the trustee does not have any discretion as to how the income is to be distributed.

Who can be a unit holder?

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).

What are the benefits of a unit trust?

There are many benefits for investors that choose a unit trust structure. These include:

  • Simple: the ‘units’ in the trust are recorded and registered so that the income and assets belonging to each party are easily defined.
  • Easy to transfer: your share in the trust can be easily transferred to another beneficiary or can be cashed in or traded.
  • Not heavily regulated: unlike a company, a unit trust is not subject to as many legislative requirements or restrictions.
  • Save on tax: a unit trust may also have some attractive taxation reductions and benefits.
  • Custom trust deed: this can be drafted to suit the beneficiaries

Disadvantages of a unit trust

Asset protection in a unit trust is weak as the units can be acquired and sold to pay creditors, in the event of bankruptcy.

It is also more complex to make tax-free distributions.

This makes a discretionary trust a more appealing option as it is much more flexible and distributions can be made on a discretionary basis.

Despite the disadvantages, a unit trust is a great vehicle for investment!

If you would like to borrow for your trust, please enquire online or call us on 1300 889 743 to speak to an expert mortgage broker who can help you get approved.

Company or unit trust?

Owning units in a trust is often viewed as similar to that of being a shareholder in a proprietary limited company.

However, there is a distinct difference! Unlike a share holder, a unit holder has a proprietary interest in the trust.

This means that they can put in place restrictions such as caveats, over the property.

Which is better?

Whilst both options offer great structures to conduct business, there are distinct advantages relative to both models.

A trust is a private arrangement and as such, it is not subject to the same complex legislation that governs companies.

Under both structures you can sell off your shares and units and create similar conditions, such as offering them to other shareholders/ unit holders, before selling to an open market.

Apply for a unit trust home loan!

We are specialist mortgage brokers with in depth knowledge of unit trusts.

We know which lenders may approve your loan. We can even help with low doc unit trust loans in some situations!

Our team can perform a comprehensive analysis of the various banks guidelines to determine which banks will accept your loan.

Please contact us on 1300 889 743 or enquire online and one of our brokers will give you a call to discuss your situation.

  • Samuel

    Will a shareholder be held responsible in case of default of the mortgage under the name of the trust?

  • Hi Samuel,

    The guarantors or the shareholders of the trust who were on the loan application will be held responsible for defaulting on the loan.