How to Get a Mortgage Using Only Trust Fund Income
Trying to get a mortgage using trust fund income can feel complicated. While trust income can provide significant financial stability, many lenders are cautious about it due to its classification as unearned income.
That doesn’t mean getting a mortgage is always out of reach. If you meet lender criteria, you need the right lender and a route tailored to your specific circumstances.
At Kerr & Watson, we help people with more complex situations. Whether your trust income is your only source of income or it forms part of a wider financial picture, we can help you look for a suitable lender.
What is trust fund income?
Trust fund income comes from a legal arrangement where assets are managed by trustees on your behalf. You may receive payments from the trust regularly or in line with specific conditions. The income might come from property, shares, cash investments or other assets held within the trust.
You don’t technically own the trust assets outright, but you are entitled to benefit from them. That entitlement is what makes this income relevant when applying for a mortgage. However, because this income doesn’t come from employment or self-employment, lenders tend to treat it differently.
Can you get a mortgage using only trust fund income?
Yes, with some lenders, it can be possible to get a mortgage using only trust fund income. But there’s no denying that it adds complexity. Some lenders will not accept trust income at all, while others may only consider it if it is accompanied by additional earned income.
The key with the lenders that consider it, is sustainability. Lenders want to be confident that your income will continue for the full mortgage term. If your trust income is reliable, regular and well-documented, it can be used on its own with the right lender. However, many mainstream lenders may not have the policies in place to deal with this kind of application. That’s where having the right adviser becomes essential.
We work closely with some lenders who are more familiar with non-traditional income sources so can run your case by them once we know the full circumstances.
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What kind of documentation will you need?
Lenders are likely to ask for several types documents as evidence to verify your trust income. These could include:
- Bank statements showing regular payments from the trust
- A copy of the trust deed outlining how the trust works
- A letter or reference from the trustees confirming the terms and ongoing income
- Tax returns if the income is declared to HMRC with tax payable
- Details of the trust’s underlying assets if requested
The stronger your documentation, the easier it will be to demonstrate that the income is sustainable. If you are receiving income monthly or quarterly, that will often be viewed more favourably than a once-a-year distribution.
How much can you borrow using trust fund income?
This will vary depending on the lender’s policy and your overall financial picture. Some lenders may use a conservative approach, only applying a low income multiple or only counting a percentage of your trust income. Others might use a full affordability assessment similar to that used for employed applicants.
Let’s say you receive fifty thousand annually from your trust. One lender might only consider twenty five thousand of that if it is paid annually. Another might accept the full amount if it is paid monthly and backed by clear evidence. This could lead to a significant difference in borrowing potential.
In general, the maximum you can borrow is often between four and five times your annual trust income. However, this depends heavily on the deposit amount and your monthly outgoings. Lenders look at your full financial situation, so existing debts or commitments like school fees or loans will be factored into the calculation.
We will run through all this with you during your initial consultation at Kerr & Watson. That way, we can give you a clear picture of what’s possible before you start house hunting.
What deposit do you need when using trust income?
Your deposit amount has a big impact on your mortgage options. While some lenders offer mortgages with just a five percent deposit, this may not be available if your income is classed as complex. In practice, you’re more likely to need at least ten percent, and ideally closer to fifteen or twenty percent.
With a deposit of forty percent or more, your options widen further, and you may benefit from better interest rates. Having a larger deposit helps to reduce the risk for the lender, which is especially useful when your income doesn’t come from a typical source.
At Kerr & Watson, we will help you identify which lenders accept trust income and what level of deposit they require as the market is very wide, so any info on this page should only be seen as a guide.
Does the type of trust make a difference?
The structure of your trust can affect how the income is assessed. For example:
- Discretionary trusts give the trustees full control over when and how much income is distributed. This can make it harder to prove income stability.
- Bare trusts give you an absolute right to the income and capital, making them potentially easier for lenders to accept.
- Interest in possession trusts guarantee a certain level of income, which may be seen as more reliable. We can review your trust document to establish the type of arrangement that you have.
What challenges should you expect?
Applying for a mortgage with trust income often involves extra scrutiny. Some of the main challenges include:
- Proving that the income is regular and sustainable
- Providing detailed documentation
- Dealing with lenders who are unfamiliar with trust structures
- Getting the trustees involved for written confirmation or references
It’s not necessarily more difficult, but it will require more preparation. If you go directly to a high street lender without understanding their criteria, you risk being turned down unnecessarily.
At Kerr & Watson, we take the time to understand your situation in detail before speaking with any provisional lenders.
At Kerr & Watson, we look at the full picture. We work with a wide range of lenders, including smaller and specialist ones that understand complex income. We also take the time to explain your circumstances clearly, provide the right supporting documents, and handle any back-and-forth with underwriters on your behalf.
Conclusion
Getting a mortgage using trust fund income is entirely possible in some circumstances, but it does take the right approach.
From proving the sustainability of your income to choosing a lender who understands trust structures, there are several steps involved.
Rather than going it alone or relying on advice from lenders who don’t deal with trust income regularly, your best move is to talk with a mortgage adviser that can support you.
If you’re ready to explore your mortgage options, contact Kerr & Watson today.
