Buying Property Through a Trust: Key Considerations
Family trusts are a common legal structure in New Zealand, used by many homeowners and investors to hold assets for purposes including asset protection, estate planning, and managing the distribution of wealth across generations. If you are considering purchasing a property through a trust, or if you already hold property in a trust and want to restructure your lending, it is important to understand how lenders approach trust borrowing and what additional requirements apply. The structure adds a layer of complexity that is worth working through with both a lawyer and a mortgage adviser before you proceed.
How Trusts Work in Simple Terms
A discretionary family trust is a legal arrangement in which assets are held by trustees for the benefit of beneficiaries. The trustees are responsible for managing the trust assets and making decisions about distributions to beneficiaries in accordance with the trust deed. In New Zealand, trusts are governed by the Trusts Act 2019, which introduced updated obligations around transparency and trustee duties.
When a trust purchases property, the trust itself - acting through its trustees - is the legal owner. The trustees sign the sale and purchase agreement and the mortgage documents in their capacity as trustees. This distinction matters for lending because the bank is lending to the trust, and its assessment of that trust's ability to repay the loan needs to be grounded in the financial position of the people who effectively stand behind it.
How Lenders Assess Trust Borrowing
Most lenders in New Zealand are willing to lend to family trusts, but they apply careful scrutiny to the structure and the people behind it. Lenders will typically require the personal guarantees of all trustees and often of the settlor - the person who established the trust and transferred assets into it. This means that even though the trust is the borrower, the trustees are personally liable if the trust cannot meet its obligations.
Lenders will also require a copy of the trust deed to understand the terms under which the trust operates, who the trustees and beneficiaries are, and what powers the trustees hold. If the trust deed contains unusual provisions or restrictions that could affect the trust's ability to grant security or make repayments, lenders will want to understand those before proceeding.
Practical Implications for Your Mortgage
Because trust lending involves personal guarantees from trustees, the financial position of each trustee is assessed as part of the lending decision. If there are multiple trustees, all of them will typically need to go through the standard income and credit assessment process. This can make the application more complex if trustees have different financial circumstances or if one trustee has existing debt obligations that affect the overall picture.
Costs are also worth factoring in. Trust lending often involves additional legal work, including the preparation of guarantee documentation and the lender's review of the trust deed. These costs are typically borne by the borrower and can add to the overall transaction costs compared to a straightforward personal loan.
- Trusts purchase property through trustees acting in their trustee capacity, not personally
- Lenders typically require personal guarantees from all trustees and often from the settlor
- All guarantors are assessed on their individual financial position as part of the lending process
- Lenders will request and review a copy of the trust deed before approving a loan
- Trust lending involves additional legal documentation and costs compared to a personal mortgage
Buying property through a trust is a legitimate and widely used structure in New Zealand, but it requires careful legal and financial planning. At Chaperone, we work with buyers across a range of ownership structures and can connect you with experienced advisers who understand both the legal framework and the lending landscape to help you structure your purchase appropriately.