Discretionary Trust Loan Restrictions

Hello,

My question is as follows, is max LVR capped when buying in a trust (say 80%?, can a 90% LVR be achieved?), and are rates generally higher compared to buying in a personal name?

Thanks!

 

as per normal - lvr and rates

 

Generally not - higher LVRs available, so to are carded rates (i.e. little/no impact). Some lenders have different channels to processing loans, but that doesn't mean it can't be done. It can have some downside to borrowing capacities as most lenders dont include any negative gearing add backs on these loans. For large loan sizes, this can be a relatively substantial hit to capacity.

 

Less lenders to trusts

 

I can only think of 1 that won't lend to trustees - ING. Not sure if they do again now but they stopped about 3 years ago.
There may be more.

 

Trusts arent same as other loans. Policies vary (a lot) but can include:
- Guarantees by all trustee / Directors
- Issues with a non-resident Director and a guarantee
- Issue with non-resident associates generally
- No LMI
- LVR may be reduced and less than 80%
- Wierd issues with unit trusts and minority interests. Just encountered one where lender has a 10% minimum rule. We fought it and they releted to 1% after legal advice paid by the borrower.
- Variation between unitholders and trustee Directors in a unit trust (eg Fred is Director, Unitholder is his wife)
- Corporate trustee v individual trustee
- Limits and conditions on equity loans or crossed loans
- Independent vetting of legal issues
- Loan conditions on changes to trustee or trust deed
- Inability to use trust assets for related borrowings
- Discretionary income issues and counting for personal servicing. Often OK if person is a trustee Director.
- Redraw may not be allowed
- Problems if the trust deed is settled same day as trustee is incorporated (a chicken and egg problem).
- Lender seeks evidence a deed was stamped ...and it cant be found
- Deed is lost or only a copy is available, not an original. The copy cant be certified as a true and correct copy of the original.
- Need for legal, tax etc advice sign off or extra advice
- Need to vary deed to specify the precise bank loan product in deed
- Neg gearing may be ignored
- Other sources of trust income can be ignored eg PSI, income of discretionary nature etc
- Bucket company issues (a tax compliance concern for liability)

Definately borrowing by a trust is best handled by a experienced broker. Going direct can yield all sorts of issues.

 

Trusts cannot borrow as they are not a legal person.
It will be the trustee who borrows.
Trustee loans can get LMI

We do a lot of trusts in my law firm and loans for trusts through my mortgage broker firm and haven't had hardly any issues.
One common issue is for Trustee A wanting to borrow and for the money to be used by another trust or company - lenders don't want to allow this. But it is the same with people too. If X borrows but Y is going to use the funds they won't like that either.