For property buyers and investors, raising a deposit can be one of the biggest obstacles to completing a purchase. While many borrowers have significant equity tied up in existing properties, unlocking it isn't always straightforward. One option is cross-charging. Offered primarily by bridging lenders, a cross-charged loan can help increase borrowing potential while reducing the cash required upfront.
What is cross-charging?
Cross-charging is a lending arrangement where two or more properties are used as security for a loan. Instead of assessing borrowing against a single property, the lender considers the combined value of all properties offered as security. A homeowner might use equity in their current property to help purchase their next home. Investors can also use existing buy-to-let properties to support a new purchase, reducing the cash needed for a deposit. In some cases, lenders may allow a limited company-owned investment property to be cross-charged with a personally owned property.
What are the benefits?
The main advantage of cross-charging is that it allows borrowers to make better use of existing property equity. By increasing the value of available security, borrowers may achieve a lower loan-to-value (LTV), leading to:
• Reduced reliance on cash deposits.
• Access to more competitive rates.
• Lower overall borrowing costs.
• A wider choice of lenders and products.
• Greater likelihood of an automated valuation model (AVM) being accepted, potentially reducing costs and speeding up the process.
For investors, cross-charging can support portfolio growth without releasing cash from existing properties.
What are the risks?
Cross-charging isn't suitable for everyone. Where multiple properties are used as security, more than one property could be at risk if the loan is not repaid. There may also be additional legal and valuation costs, and lender consent may be needed where an existing property already has borrowing secured against it. Not all lenders will accept this arrangement.
Is cross-charging right for you?
Cross-charging can be an effective way to unlock property equity and reduce the cash needed for a purchase. It may also help borrowers who are not eligible for a traditional mortgage, allowing them to purchase a new home or downsize before their existing property has sold. However, it is more complex than a standard mortgage and requires careful consideration.
As lender criteria vary, specialist advice is essential. A broker can help assess whether cross-charging is suitable and identify lenders that support this type of arrangement.
The availability of cross-charging facilities and lending criteria will vary between lenders. Your property may be repossessed if you do not keep up repayments on a mortgage or loan secured against it.
