Working with Clients Who Are Using Family Trusts

Family trusts remain a widely used structure for holding property in New Zealand, with many clients owning their home or investment properties through a trust rather than in their own names. When these clients seek new lending or want to refinance, the trust structure creates a set of questions that a standard residential application does not raise. Brokers who are comfortable with trust lending can serve a broader client base and handle more complex transactions confidently.

The Basics of Trust Lending in New Zealand

When a property is held in a family trust, the borrower in a legal sense is the trust itself - represented by its trustees. Lenders will assess the trustees as guarantors or co-borrowers and will look at both the trust deed and the trustees' personal financial positions. Most lenders in New Zealand require the trustee or trustees to provide personal guarantees for trust lending, which means the individual's income, existing liabilities, and credit history are all part of the serviceability assessment.

The trust deed is the governing document, and lenders will want to review it to confirm the trustees have authority to borrow, to mortgage trust assets, and to provide guarantees. Most well-drafted New Zealand trust deeds include these powers, but older or simpler deeds sometimes do not. Identifying any gaps or restrictions early - ideally before approaching lenders - avoids delays in the application process.

Serviceability and Income Assessment

One of the more nuanced aspects of trust lending is how income flows through the structure. If a client receives distributions from a trust as part of their income, lenders will want to see evidence of the trust's financial position and a history of distributions. Trust income can be treated differently across lenders - some will include it at full value, others at a reduced percentage, and some will not include it at all without at least two years of tax returns showing consistent distributions.

Where the clients are self-employed and operate their business through a trust or related entity, the income assessment becomes more layered again. Understanding how the lender's credit team will interpret the client's structure before lodging is important. Some lenders have specialist business banking or complex income assessment teams whose criteria differ from their standard residential process. Knowing which lender is the best fit for a particular client structure - rather than the first one that comes to mind - is where broker expertise genuinely shows.

LVR Considerations for Trust-Held Properties

The RBNZ's LVR restrictions apply to lending secured against property regardless of whether that property is held in a trust. However, how a lender classifies the transaction - owner-occupied versus investment - can be influenced by the trust structure. A family trust that holds the family home may still qualify for owner-occupier LVR treatment if the trustees live in the property and it is genuinely their primary residence, but lenders may require evidence of this. It is worth checking with each lender individually rather than assuming owner-occupier treatment applies.

Common Issues to Watch For

Several issues come up with some regularity in trust mortgage applications. The trust deed may name trustees who have since changed, without the title being formally updated. The trust may have multiple beneficiaries whose interests need to be considered. A trustee may have been discharged or passed away. Any of these situations can slow an application significantly if they surface during the lender's review rather than being addressed proactively.

Encouraging clients to speak with their solicitor before the application process starts - to confirm the trust structure is in order and that the trustees are correctly recorded on the relevant titles - is time well spent. It is also worth confirming whether the trust is subject to any existing lending with another institution that would need to be discharged or taken into account in the new application.

At Chaperone, we work with brokers handling a range of trust-based property ownership structures and understand the documentation requirements that different lenders apply. Clients who hold property in trusts often have more complex overall financial pictures - and they value a broker who navigates that complexity competently, without making it feel more complicated than it needs to be.