What is cross-securitisation?
Cross-securitisation (also known as cross-collateralisation) is when more than one property is used to secure a loan or multiple loans. For instance, if someone owns sufficient equity in their home and wants to buy another property, they could finance 100% of the investment property price plus any other purchase costs.
It’s not typically possible to borrow 100% of the stand-alone security value, and you’ll need to offer a second security for the loan. With cross-securitisation, the loan would be secured by the investment property being bought and the homeowner’s existing property.
So, in simple terms, cross-collateralisation is when you take out one loan with two security properties that are tied together.
When is cross-securitisation useful?
Cross-securitisation (or cross-collateralisation) involves using multiple properties to secure singular or multiple loans with the same lender. But when is cross-collateralisation beneficial for property investors?
When purchasing multiple properties
If a property developer is purchasing more than one investment property for their property portfolio, cross-securitisation (or cross-collateralisation) can effectively pool them together to obtain a larger investment loan with the same lender. This can be particularly advantageous if the investor wants to finance several projects simultaneously.
Buying an investment property
Cross-collateralisation can be used to manage the cash flow of multiple investment properties. By combining more than one investment property, the investor can negotiate the loan structure for more flexible repayments or use the cash flow from one property to finance the others.