Trust structures scare a lot of borrowers off, usually because somebody has told them the banks do not like trusts. Plenty of lenders are perfectly comfortable with a trust. Far fewer are comfortable with a corporate trustee, a commission-heavy income, and two transactions settling in sequence. This file had all three.
Client Situation
A married couple in their thirties on Sydney’s Northern Beaches, no children. He works in cyber security sales, where a meaningful share of his income is commission rather than base salary. She is a marketing professional. They already held one investment property in the Ipswich corridor of south-east Queensland, owned by a company acting as trustee for their family trust. The trust was trading profitably with no outstanding liabilities and no reliance on either of them personally to prop it up.
They wanted a second property around the $1.1 million mark in the Moreton Bay region, held in the same trust. They also wanted an offset account on both loans and interest-only repayments on the property they already owned.
The Challenge
A corporate trustee narrows the lender panel before you have discussed a single number. Trust deed, ABN, director guarantees, and in some cases a lower LVR cap or a pricing loading purely because of the structure. Nothing wrong with any of that, but it shrinks the field.
Commission income shrinks it further. Lenders treat commission inconsistently some shade it heavily, some want two full years at the same employer, some take a year-to-date figure and annualise it properly. Get the annualisation wrong and a perfectly serviceable file looks marginal.
Then there was the sequencing. The deposit for the purchase was coming out of the equity in the existing property, so the refinance had to settle first, or at least land on time. Two transactions, one dependent on the other, with a contract date on the second one that does not move.
And the purchase was going in at 87.73% LVR, which means lender’s mortgage insurance. LMI on a loan near $1 million held in a trust structure is where a lot of lenders quietly stop returning your calls.
What We Did
First, the refinance. The existing property valued at $995,000. I refinanced it to 80% of that value, which took the loan from $724,000 to $796,000 and released $72,000 in cash. Interest only for five years on that facility with an offset attached, which is what they wanted for the older property.
Then the purchase. A base loan of $965,000 on the $1,100,000 property with the LMI capitalised, principal and interest, offset account attached, held in the trust the same way as the first property. Funds to complete came from the $72,000 of released equity plus $213,000 of their own savings.
The income work was less visible but it mattered. I annualised the commission properly against the pay history rather than handing across a year-to-date figure and hoping the assessor did the maths in their favour. With that done the servicing was comfortable rather than borderline, which changes how a credit team reads everything else in the file.
Lender selection came down to one that lends to corporate trustee structures without a pricing penalty, had appetite for LMI at that LVR inside a trust, and carried a $125 annual fee rather than something worse. Both settlements were then sequenced so the equity release landed ahead of the purchase.
The Numbers
Existing property refinance and equity release
| Item | Position |
| Valuation | $995,000 |
| Existing loan balance | $724,000 |
| New loan amount | $796,000 |
| LVR | 80% |
| Equity released | $72,000 |
| Structure | Interest only 5 years, variable, offset |
New property purchase
| Item | Position |
| Purchase price | $1,100,000 |
| Base loan amount | $965,000 plus capitalised LMI |
| LVR | 87.73% |
| Structure | Principal and interest, variable, offset |
| Funds to complete — released equity | $72,000 |
| Funds to complete — client savings | $213,000 |
| Ownership | 100% held in the family trust |
| Annual fee | $125 |
The valuation on the refinance is the linchpin of a file like this, and it is worth understanding why. At $995,000 they released $72,000. Had it come back at $940,000 instead, 80% is $752,000 and the release drops to about $28,000 and the entire purchase plan changes on the spot. So we order the valuation early and plan around the number, not the hope.
Practical Takeaway
Going to 87.73% and paying LMI is a choice, not a mistake. LMI on a loan that size is not cheap, and capitalising it means paying interest on it for the life of the loan. The alternative was waiting to save roughly another $150,000 for a 20% deposit on the second property. In a market where the target property was appreciating faster than they could save, they took the LMI. That is a judgement call about your own market and your own timeline, and there is no universal right answer to it.
If a large slice of your income is commission, get the annualisation right before you go anywhere near a pre-approval. It is the single most common reason a strong sales income gets assessed as a weak one.
And on the structure itself whether to buy in a trust is an accounting and legal question first, a finance question second. Talk to your accountant about why the trust exists before you talk to me about how to lend into it. Where I can help is making sure the structure your accountant recommends does not quietly cost you the deal.
How We Approach These Deals
Two-transaction files live and die on sequencing. Before anything else I map the dates backwards from the purchase settlement, then work out how much slack there is in the refinance, then order the valuation. If the equity release is funding a deposit, that valuation is not a formality, it is the deposit.
I also assume the trust documentation will take longer than anyone expects, because it always does. Trust deed, any variations to it, company constitution, ASIC extract, guarantor identification. Getting that assembled at the start rather than mid-assessment is the difference between a file that runs and a file that stalls.
Talk It Through
If you hold property in a trust and you are thinking about the next purchase, the equity release valuation is the first thing to look at, not the last. Happy to map it out with you.
Jeremy Harper, Credit Representative CRN 463430 of Mortgage Specialists Pty Ltd ACL 387025
This article is general information only and does not take account of your objectives, financial situation or needs. Figures are illustrative of the transaction described and are not an offer of credit. Names, lenders and property addresses have been withheld.