UNO home loans
23rd September 2023
What is a family trust loan?
Family trust loans are a type of loan where the trustee takes out a loan on behalf of trust beneficiaries, who are often required to act as guarantors.
It is possible to use your family trust to invest in property. However, you may find that lenders treat family trust loans differently than standard home loans.
Requirements vary, but family trust loans can be acquired with a LVR of 95% with some lenders. Trustees are typically required to act as guarantors on a family trust loan although there are exemptions.
Family trust loans provide a range of benefits, including asset protection and being tax effective.
This article explains everything you need to know about family trust loans.
Looking for a family trust loan? Talk to a UNO broker today.
For more information, click here.
What is a family trust?
A family trust is a legal financial arrangement that enables individuals or families to manage and distribute assets such as property.
In short, it is a structure with a trustee that holds assets for beneficiaries. Trustee refers to who holds assets (for example, mum and dad) for the benefit of others while 'beneficiaries' are those who receive assets (children).
Under a family trust, the trustee manages assets held by the trust on behalf of the beneficiaries. They’re simpler than most other trust structures, which has led to many investors using them to secure home loans.
No individual owns the assets in a family trust. Instead, they’re owned by the trust itself, with the trustee managing the distribution of any income the trust generates. This is done upon the conclusion of each financial year. Furthermore, the trustee can help the beneficiaries with any tax benefits the trust may provide.
The trust can borrow and invest in a similar way to an individual. However, all assets that require trust funds must be held in the trust.
Read more: How to set up a family trust
Can family trusts borrow money in Australia?
Yes, family trusts can borrow money through mortgages and other products. This is commonly done to invest in property that is held in trust for beneficiaries.
However, there are important rules around family trust lending you will need to keep in mind.
Why use a family trust to borrow money?
Family trusts offer several benefits that you won’t have access to as an individual borrower.
For example, you can use the trust to distribute income to younger family members. You could do this to lower your tax bill, although you should seek professional advice before doing so.
Furthermore, many people use family trusts to bypass traditional estate planning. This is because trusts have deeds - legal documents that set out strict rules for the fund. Deeds can be useful upon a trust member's passing.
Family trusts also offer asset protection. Creditors and debt collectors cannot cannot come after assets held in a family trust if you run into financial problems. The trust can also protect assets in other circumstances like marriage failure or business failure.
How do lenders look at family trusts?
Many Australian lenders don't offer home loan products to family trusts. This is because the trusts remove the requirement for personal liability, potentially making it riskier for lenders.
Some lenders might refer you to a commercial lending department which typically has higher fees and interest rates.
However, UNO has brokers who specialise in family trust lending. We can help you find lenders that offer home loan products for family trusts.
Do family trust beneficiaries need to act as guarantors on a loan?
Lenders typically require all trust members over the age of 18 to act as guarantors on a loan, ensuring personal liability for a family trust loan.
Each guarantor must provide the lender with evidence of income, assets, liabilities, and other information.
This shares the responsibility for the property between each member of the trust, which lowers the risk for the lender.
Lenders often reject loan applications if an adult beneficiary refuses to act as a guarantor.
However, there are some lenders that may offer family trust without requiring all adult members to act as guarantors.
If you are looking for a family trust loan that doesn't require all members to act as guarantors, a UNO broker could help you.
How much can a family trust borrow?
Some lenders offer investment property loans with loan-to-value (LVR) ratios of 95%, meaning a deposit of 5% of the loan's value will be required.
Your LVR and the amount you can borrow varies between lenders. Lenders who specialise in family trust loans might offer a different LVR to a bank.
The LVR may decrease to 80% for low-doc loans which can be offered to family trusts.
Generally, you will find it easier to borrow as a family trust if the trustee is an individual rather than a company. Even so, there are still some lenders that allow you to borrow under these circumstances.
What to do next
You should always speak with a financial professional before setting up a family trust. They will be able to provide more information about the trust structure.
Further reading
For more information, click here.
