How will a Scottish Trust Deed affect my property?

If you’re thinking of entering into a Scottish trust deed and you’re also a homeowner, you may be worried about how the arrangement will affect your home. Although a trust deed can affect property, it doesn’t necessarily mean it has to be sold.

Scottish trust deeds and property

Rather than selling your property, the trustee is more likely to take into consideration the equity that exists, if any, and use it to pay a higher proportion of your debt than would otherwise be possible.

Creditors would naturally expect a trustee to investigate and use all the assets of someone who owes them money, but the fact that you may not need to sell your home in a trust deed is very important.

Protected and unprotected trust deeds

There are two types of trust deed in Scotland – protected and unprotected. A protected trust deed involves transferring control of your property, along with your other assets, to the trustee.

If you don’t protect the trust deed and creditors later find out you have a property with equity that could have been used to repay some of your debts, they’re likely to take further legal action against you in the form of sequestration, which is the Scottish term for bankruptcy.

How is property treated in a protected trust deed?

If there is sufficient equity in your home, the trustee will take it into account when considering your repayments. Trust deed payments are taken from your income each month, but equity in a property can considerably boost the amount your creditors receive back.

So how does the trustee arrive at an equity figure?

• Your home is professionally valued and if you have a mortgage, a ‘redemption’ figure is obtained from the lender
• The redemption figure, which is the sum required to repay the mortgage, is then deducted from the valuation to arrive at the amount of equity

It’s common practice if your property is jointly owned to view 50% of the equity figure as yours and 50% as the joint owner’s. The equity sum is officially documented before you sign the trust deed, so you know how much you’re repaying even if the value of your home increases during the term.

So how do you raise this potentially large sum of money without actually selling your home?

How to avoid selling your home when in a trust deed

A number of options may be open to you to raise the required amount of equity, including:

Paying in instalments

It may be possible to extend the term of your trust deed and pay the equity in instalments. Your own income may allow for this, but if the property is jointly owned, your partner or spouse may agree to pay or contribute to the instalment amounts.

Investment by family or friends

Members of your family or friends may wish to make an investment in the property, raising the money on their own account to pay the trustee.

Joint owner buying your share of the property

If your home is jointly owned and their own financial circumstances allow, your partner or spouse may be able to raise the money needed by remortgaging in their sole name.

Partial investment by a joint owner

Again, the joint owner of your property could potentially pay a proportion of the equity as a lump sum to reduce your own liability.

Sale and rent back

Sale and rent back schemes involve selling your home to a private firm, typically at a discount, and then renting it back. It’s advisable to obtain legal advice before embarking on this route, however, to protect your rights as a tenant, as sale and rent back companies must follow strict rules and regulations.

What if there’s little or no equity in your property?

If the equity in your property is less than £5,000, the trustee may decide that it’s not worthwhile including it in the arrangement – the associated fees for remortgaging or otherwise altering the property’s balance of ownership may be too high.

It’s worth knowing that if the trustee does want to sell your property and you’re living there with your family, you may be able to apply to the sheriff court for a delay or cancellation of the sale.

For more information on how a trust deed could affect your property, call one of our expert team at Scotland Debt Solutions for a free same-day consultation – we operate a network of offices throughout Scotland.