Does a Declaration of Trust Affect the Mortgage?

A Declaration of Trust (or Deed of Trust) is a legally binding document used in England and Wales to define the beneficial ownership (equity shares) in a property.

It is primarily used by joint homeowners, whether unmarried partners structuring contributions or married couples optimising property income for tax purposes, who need legal and financial clarity.

While the deed is necessary, you are right to be concerned about its impact on your mortgage. The Declaration of Trust will only affect your mortgage if its terms prejudice the lender's security or restrict their ability to be repaid upon sale or to enforce their right to repossess the property under the mortgage terms.

Your Conveyancing Solicitor must review the deed to confirm its compliance as a deed that does not prejudice the mortgage lender's security.

The core risk - the lender's security

The mortgage lender's concern is that their loan will be repaid. A Declaration of Trust is only deemed to prejudice the mortgage lender's security if it restricts their ability to enforce their rights, specifically to repossess the property.

The single biggest risk in this area is granting a legal right to reside in the property to a third-party adult who is not on the legal title or mortgage.

The reason this issue arises is that if the lender attempts to repossess due to mortgage default, the third party (who is not bound by the mortgage agreement) could legally obstruct the repossession process.

To mitigate this risk, any adult (over 18) residing in the property who is not a legal owner must sign an Occupier Waiver Form. This document confirms they postpone their interest to the mortgage lender’s interest, thus protecting the lender's security.

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).

What happens if you notify the lender?

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 deed?

For most joint homeowners, a Deed of Trust is used solely to assign the beneficial interest in property for tax purposes or to define equity splits. In these standard scenarios, the deed does not affect the mortgage lender's security.

A qualified solicitor drafting the deed should ensure it is non-prejudicial, meaning it is not required to be sent to the lender for their formal consent.