Hello CazMac77 and welcome to the forum.

There is nothing, in principle, to stop you entering a Scottish Trust Deed as a result of living in a shared-ownership home.

To help the experts more specifically guide you could you let us have a little more detail?

How much is the home worth do you think (in total - not just your share)?

How much do you still owe on the mortgage?

Is your share of the home just owned by you or along with someone else?

Approximately how much are your unsecured debts?

I bought my property 4 years ago for ?ú140k, I put down ?ú20k deposit and took out a ?ú65k repayment mortgage. I'm assuming the property is valued around ?ú150k to ?ú155k now as prices in Edinburgh have continued to increase even in this recession!

Think I have about ?ú63k outstanding in mortgage, never missed any mortgage payments over past 4 years.

The mortgage is solely in my name as my husband was unemployed at the time of purchase and he has no assets or debts in his name ONLY mine!

My unsecured debts are worth aprox ?ú27k

thanks your comments are appreciated.

Hi cazmac

Very generally, if you entered a Trust Deed, the Trustee would require to have a valuation carried out. On assessing equity, he would take the valuation figure, deduct the outstanding mortgage and then calculate 52% of the remaining figure as your share of the equity.

This figure would be regarded as an asset in the Trust Deed and would require to be paid by you or a third party.

Mark

I understand how this is calculated I'm just a bit confused on how they would get the sum of money from any equity that is calculated as I have a clause in my homestake mortgage which forbids me in obtaining any remortgages for extra cash UNLESS this is solely to purchase remaining equity back from the housing associating. Would I then be in a position at the end of the trust deed to find a further loan to pay off any remaining amounts? as I dont have any third parties that could help pay this off. Is the equity calculated at the time of setting up the trust deed? or the end of the TD?

I thought with TD's that the monthly payment over a period of 3 years is sufficient to pay off the TD - its only recently that I realised that if you have a mortgage then they would take equity from this aswell.

If equity is found and calculated is this taken into account when setting up monthly installments for a trust deed?

Sorry for all the questions I'm just trying to understand how a TD works with having a mortgage and especially someone in a position where I'm unable to touch any equity due to only owning part.

thanks again for your assistance its greatly appreciated.

Hi CazMac77,

Different firms seem to take a different approach to dealing with equity. The best advice I have seen on this forum is to get the position regarding how equity will be dealt with in writing before ever signing a Scottish Trust Deed.

With a Trust Deed you are expected to pay what you can afford towards the debts, normally for a period of three years.
In addition you are expected to contribute the value of assets such as equity in a home.
In return for both of these things creditors, provided the Trust Deed is accepted, agree to write off any debts that remain unpaid.

Equity would not be factored into the payments for the three years. This is because you are already committed to paying what you can afford from surplus income; it wouldn't be possible for you to fund extra payments to cover the equity as well during the three years.

If the amount of equity isn't that large it may be possible to take account of the equity by making some extra monthly payments after the end of the usual three year period (rather than remortgaging for example).

Some things you might want to consider are:

1 - Whether your home is jointly owned. A mortgage being in your name does not mean the property is yours. Other factors are involved in determining ownership. If the home is jointly owned it's just your share of the equity that would be taken into account (i.e. a partners share of the equity would not be).

2 - The valuation of your home. The valuation for a Scottish Trust Deed is typically lower than one you'd receive from an estate agent and is likely to reflect the value of the property if a very quick sales were needed. This may reduce the amount of equity that you think there is.

If you feel that the situation with the restriction on your ability to raise finance on the home means that a Scottish Trust Deed will not work you may need to consider other options. They might include the Debt Arrangement Scheme or debt management plans. In most cases these will take longer to deal with the debts than a Trust Deed. Further information on both is available on our sister website www.protected-trust-deed.net

Hi Cazmac77,

I might be muddying the waters further for you here, and am loathe to disagree with Mark, but I would look at the equity situation differently.

As far as I see it, you own 52% of your home, so to calculate your share of any equity I would work out 52% of the property's value and THEN take off your outstanding mortgage. So based on your estimates your share of equity would be 52% x ?ú150k (ie ?ú78k) minus your mortgage of ?ú63k - giving your estimated equity share as ?ú15k.

If you are unable to remortgage to find this amount then you would probably either have to find a third party (family/friend?) to fund this for you, or you may be able to extend the trust deed over a longer period to pay the equity off after the normal 3-year period has expired (only really possible if the equity is sufficiently low to be able to pay it off within a reasonable period, eg 1 extra year or maybe 2 maximum).

The equity should be calculated at the start of the trust deed.

I hope this makes sense.

Of course with a valuation that may be lower than currently expected, and a situation where the property might be jointly owned, this figure of ?ú15000 might actually turn out to be on the high side.

Another thing I forgot to mention is that the equity would normally be reduced by up to around ?ú5k to reflect the fact that if you were selling the property it would cost that much in fees etc anyway, so the realisable equity is actually lower.

Therefore in the above example, there would only have to be ?ú10k or so to be found to buy out the equity. At least that's how we would normally look at it - presumably different firms may do things slightly differently.

Thank you for your comments this has been extremely beneficial whilst considering my options. I noticed from another post that a lady is being ordered to sell her property to free up the equity so has made me re-think my situation and certainly be cautious which company to use if I do decide to take up a trust deed. I just need to know all the facts on a Trust Deed before i consider signing anything.

thanks again 🙂

That's very wise CazMac77. A full understanding and a written explanation of how things will be handled is very important.

Any decent Trust Deed firm will also be able to advise you on the alternative solutions as well so that you have a comparison point.

Hi cazmac77

This is probably a good example as o why you need to have everything confirmed in writing before proceeding as it saves any future grief with your choses IP.

On the property side, I stick by my initial thoughts. For the other way to be true, the mortgage would require to be registered only against your 52% interest which is unlikely. In most couple owned properties, the deeds state a one half pro indiciso share (ie jointly owned at 50% each) but he mortgage is secured agains the whole property. Even in the event that the property was in one party's name and the mortgage in both, the same rules would apply.

A good healthy debate.

Mark

It's an interesting one.

I'd have thought that the deciding factor is that the mortgage is only in cazmac's sole name. Therefore the repayment of the mortgage if the property was being sold would be made from cazmac's 52% share, not the housing association or whoever owns the 48% share. So cazmac's equity is only the remaining funds once the mortgage has been settled from her share.

I guess the contractual basis of the agreement would have to be closely scrutinised, but I can't see the government or the housing association readily agreeing to your viewpoint, Mark - surely it could end up costing them a fortune!

As we're seeing different Trust Deed firms can interpret things in slightly different ways.

I think this just reinforces the point that anyone considering a Scottish Trust Deed should be entirely clear how issues such as this will be dealt with (and get it in writing) before ever signing the Trust Deed itself.

Hi Kevin

You're right, I think it depends on the terms of the security and the agreement with the housing association. In these cases I usually retire to a darkened corner of the room and start checking through the Terms and conditions.

It's an interesting point though and probably outlines what we always say here, to get these things checked and the position confirmed in writing before doing anything (as TDA says)

Mark