Your home and a trust deed
If you own your home, a trust deed can put it at risk. Here is how the equity is valued, the ways it can be dealt with, and what changes if you rent.
If you own your home, a trust deed can put it at risk, because the equity in it (the value left after paying off your mortgage and any other secured loans) passes to your trustee for the benefit of your creditors. The law lets your trustee agree not to sell your home if you pay the value of that equity in another way, such as a lump sum or extra monthly payments. If you rent, your rent is not part of the trust deed and must still be paid as normal.
Your home can be at risk. Before you sign, ask the trustee in writing how they plan to deal with your home, what the equity figure is based on, and what would happen if you could not keep to the arrangement.
What happens to your home in a trust deed?
When you grant (sign) a trust deed, you pass your estate to your trustee, the licensed insolvency practitioner who runs the trust deed. Your estate means the things you own, and it includes your share of the equity in your home, unless the home has been excluded from the trust deed (see below). If you own your home with someone else, only your share of the equity is included.
The trustee has to try to get the full value of what has been passed to them, for the benefit of your creditors, unless they can show that enough money will come from elsewhere. You must give the trustee full details of everything you own, and hiding assets may be a criminal offence.
The trustee can also register a notice in the Register of Inhibitions. This has the same effect as an inhibition: it stops the property being sold or borrowed against without the trustee. The trustee must recall the notice when the trust deed ends, and can recall it earlier as part of an agreement about your home.
How is the equity in your home worked out?
The figure has to be based on a valuation of your home as at the date you grant the trust deed, carried out by a chartered surveyor or another qualified professional. Guidance from the Accountant in Bankruptcy (AiB), the public body that supervises trust deeds in Scotland, says the valuation should show the full open market value, not a lower “quick sale” figure. The trustee also gets up-to-date figures from your mortgage lender for what you owe.
AiB’s guidance on the Common Financial Tool says the cost of the valuation is absorbed by the trust deed, so you are not billed for it separately. Like the trustee’s fees, it comes out of the money in the trust deed before creditors are paid. See what a trust deed costs.
If you reach an agreement with your trustee and keep to it, the equity figure is fixed at that valuation. It does not go up if house prices rise during the trust deed.
Can you keep your home?
Section 175 of the Bankruptcy (Scotland) Act 2016 lets the trustee agree not to sell your home, and to give up their interest in it, on conditions. The conditions can include:
- paying an amount set by the trustee by an agreed date
- paying an extra monthly amount for a period set by the trustee, which can run after the usual 48-month payment period
- co-operating with the trustee.
The trustee sets the amounts using the surveyor’s valuation. The agreement is recorded on an official form, and a copy goes to AiB and to your creditors.
| Way of dealing with the equity | What it means | Things to weigh up |
|---|---|---|
| Lump sum | You pay the equity figure by an agreed date | The money might come from remortgaging or from a family member buying your share, but neither may be possible |
| Extra monthly payments | You keep paying after the 48 months end | Your trust deed lasts longer, so the commitment lasts longer |
| Sale | The trustee sells and takes your share of the equity | You would need to find somewhere else to live |
AiB’s trust deed information document says a trust deed usually lasts four years, but can last longer if you have valuable property.
If remortgaging is part of the plan, your trustee may ask you to show that you have genuinely tried. AiB’s guidance gives decision letters from two separate mortgage applications as an example of the evidence a trustee might ask for. There is no legal deadline for agreeing how the equity will be dealt with, but AiB recommends it is agreed as early as possible. Ask about it before you sign: see before you sign a trust deed.
If you cannot keep to the agreement
If you default, the trustee can sell. If you do not pay what was agreed, or do not co-operate, the trustee can withdraw from the agreement and sell your home. If it is sold, the trustee is entitled to the full equity from the sale, and the figure you agreed earlier no longer applies.
There are some protections for families. If your spouse or civil partner lives in the home, the trustee needs their consent before selling. If you live there with a child of the family, the trustee needs your consent. Without that consent, the trustee must get the permission of a sheriff (a judge in the local sheriff court). The sheriff looks at the needs and resources of your family and the interests of your creditors, and can refuse, delay a sale for up to three years, or allow it with conditions. The trustee must tell your local council before going to court.
If the trust deed fails altogether, creditors can pursue you again and the trustee can petition for your sequestration (bankruptcy in Scotland). See what happens if a trust deed fails.
What if you have little or no equity?
A trust deed can be set up so that your home is left out altogether. This is only possible if:
- the home is your only or main home
- there is a mortgage or other secured loan on it, and
- every lender with a security over it agrees, in writing, not to claim in the trust deed.
AiB expects this to be considered where there is no equity, very little equity or negative equity. If your home is excluded, your mortgage carries on exactly as before, and your lender does not vote on the trust deed or receive any payment from it. The mortgage is not written off. If there is no mortgage or secured loan on your home, it cannot be excluded.
mygov.scot also says that if you sell a home that was left out of your trust deed, any money left after the costs of the sale must be passed to your trustee.
Worried about your home? Tell us a little about your situation and a licensed insolvency practitioner firm will call you to go through every option, including ones that are not a trust deed.
May not be suitable in all circumstances. Fees apply. Your credit rating may be affected. Free, impartial advice is available from MoneyHelper and other services.
What about your mortgage or rent?
If you have a mortgage
Your ongoing mortgage payments cannot be included in a trust deed. You keep paying your lender directly, and your mortgage is counted as essential spending when your trust deed payment is worked out.
A mortgage or other loan secured on your home is not written off at the end of a trust deed. mygov.scot says mortgage arrears can be listed in a trust deed but will not be written off. If you fall behind with your mortgage, your lender can take action in the usual way, which can put your home at risk whether or not you are in a trust deed. Tell your trustee and your lender straight away if you are struggling.
If you rent
If you rent, there is no equity to deal with. Your ongoing rent cannot go into the trust deed. You keep paying it, and it is counted as essential spending in your budget.
Rent arrears run up before you sign can be included, according to mygov.scot’s list of debts. National Debtline’s trust deed guide points out that including arrears may not stop a landlord from taking action to evict you over them, and that in some situations a trustee may allow payments towards rent arrears in your budget. Tell your trustee about any arrears and any letters from your landlord.
Other options if you own your home
A trust deed is not the only option for homeowners, and as well as the risk to your home it has fees, affects your credit rating for six years and is listed on the public Register of Insolvencies. In a Debt Payment Programme under the Debt Arrangement Scheme (DAS) you do not have to sell your home, but you repay the debts themselves (interest and charges are frozen). Sequestration also affects the family home, in different ways. See trust deed or DAS?, and speak to a free debt adviser about which options fit your situation.
Official sources
- Bankruptcy (Scotland) Act 2016, section 175: agreement about the debtor’s home
- Bankruptcy (Scotland) Act 2016, section 113: the trustee and the family home
- AiB Notes for Guidance, protected trust deeds, 2.12: agreements about property
- AiB Notes for Guidance, protected trust deeds, 2.11: excluding your home
- mygov.scot: your assets in a trust deed
Common questions
Will I lose my house if I sign a trust deed?
Not necessarily, but your home can be at risk. The equity in it passes to your trustee. The law lets the trustee agree not to sell if you pay the value of that equity another way, such as a lump sum or extra monthly payments after the usual payment period. If you do not keep to that agreement, the trustee can withdraw from it and sell. Ask how your home would be dealt with before you sign.
What happens if I own my home jointly with my partner?
Only your share of the equity goes into your trust deed. Your partner's share is not part of it. If your spouse or civil partner lives in the home, the trustee needs their consent, or the permission of a sheriff, before selling it. A sheriff can refuse, delay a sale for up to three years or add conditions, after looking at the needs of the family.
What happens if my house goes up in value during the trust deed?
If you have a written agreement with your trustee about your equity and you keep to it, the equity figure is based on the valuation at the date you granted the trust deed and does not go up. If the house is sold during the trust deed, the trustee is entitled to the full equity from the sale, and the agreed figure no longer applies.
Can I sell my house during a trust deed?
Speak to your trustee first. If your home is included in the trust deed, the equity belongs to the trust and the trustee receives the full amount from a sale. Even if your home was excluded from the trust deed, mygov.scot says any money left over after the costs of selling it must be passed to your trustee.
Related guides
- Before you sign a trust deed The information and time you must be given, questions to ask, and how to check an insolvency practitioner.
- Trust deed pros and cons The advantages and disadvantages of a trust deed, set out side by side.
- Trust deed or DAS? The Debt Arrangement Scheme and a protected trust deed compared side by side.
- Getting a mortgage after a trust deed What mortgage lenders see after a trust deed, when the records clear, and how to prepare.