Does a Declaration of Trust Affect the Mortgage?

A declaration of trust is part of a Deed of Trust, and it declares who the beneficial owners are and what their equity is. It is used between homeowners for protection or between landlords for tax purposes.

In most circumstances, a mortgage lender will allow a declaration of trust to be used for this purpose; however, there are some circumstances where they will object. The reason for objecting would normally be if the declaration would affect their ability to repossess the property in the future and sell it. For example, if a beneficial owner isn't bound by the mortgage terms.

You can find out if your mortgage lender would object to a declaration of trust by reviewing your mortgage terms and conditions.

How could a Declaration of Trust impact a mortgage lender?

The buyer's solicitor will review the document to determine whether it could impact the lender. If the Declaration of Trust could impact the lender, the buyer's solicitor will have to get consent from the lender before the document can be filed.

For a lender, their biggest concern is that their loan will be repaid. Meaning any terms in the declaration of trust that could impact the lender's ability to repossess the home could make it harder to get their consent.

One way a Declaration of Trust can be used is to grant a third-party adult the right to live in the property without their name being on the legal title or mortgage. This would impact the lender’s security because that third-party adult could potentially block them from repossessing the property.

What happens if you notify the lender of a Declaration of Trust?

Once you formally notify the mortgage lender that a Declaration of Trust (or a Deed of Trust) exists, you are legally bound by their response. If your deed is non-prejudicial to their security, there should be no issue, and they will agree to the terms.

If, however, the mortgage lender does not agree with your deed, your solicitor must immediately liaise with them. They will seek clarification on the specific terms the lender objects to and then look to redraft the deed to meet their regulatory guidance.

If you encounter an unexpected issue with your mortgage lender, we may be able to help you with redrafting your deed using our specialist solicitor.

Does the mortgage lender need to see the document?

In most instances, a Declaration of Trust is solely used to define the equity split between joint homeowners and does not impact the mortgage lender's security. Meaning the lenders will not need to see the document. A qualified solicitor will be able to review the document, ensuring that it does not require the lender's formal consent.

What is in a Declaration of Trust?

There are several terms that should be included in all Declaration of Trust:

• The figure that each buyer has contributed to the deposit.
• The amount the buyers have contributed to the initial acquisition price.
• How much each buyer will pay in mortgage repayments.
• The percentage that each buyer will own.
• What the percentages will change to if one buyer contributes more towards significant changes to the property, i.e, a loft conversion.
• The percentage each buyer will receive when the property is sold.
• What the property will be valued at before any sale.
• The circumstances in which the property will be sold.

These are the terms that must be ironed out in a Declaration of Trust. This will protect all parties involved, preventing future disputes that could arise if not documented in a written agreement. While it is possible to draw up a Declaration of Trust at a later date, it is typically drawn up before the property is purchased.

Can a Declaration of Trust be reversed?

A Declaration of Trust can be reversed or altered at any time. However, all parties who signed the original document must agree to any alterations or revisions.

This is achieved by executing a new legal document, typically a Deed of Release or Deed of Revocation, which requires solicitor involvement to ensure the correct legal and Land Registry procedures are followed.

Deeds of Trust suitable for mortgage lenders

We provide specialist Deeds of Trust for joint owners, specifically drafted to avoid prejudicing the mortgage lender's security. Our services cover a range of requirements, including:

Fixed Share Deed of Trust

For joint owners purchasing a home who need to declare specific, fixed beneficial interests (e.g., Jane 40%, Mike 60%) and confirm intentions regarding a future sale or relationship breakdown.

Deed of Trust for Tax Purposes (Form 17)

Essential for married couples who own Buy-to-Let property and wish to share property income in unequal shares for tax optimisation. This deed must be filed alongside HMRC Form 17.

Floating Deed of Trust

A bespoke solution providing a variable beneficial interest that fluctuates over time to reflect contributions like mortgage repayments, purchase costs, and property developments.

Deed of No Beneficial Interest

Typically used in joint mortgage, sole proprietor arrangements where one party must declare a zero beneficial interest (critical for Stamp Duty Land Tax avoidance, divorce, or securing jointly-shared but not jointly-owned property).