The investment lending risk you want to avoid
Ever heard the saying, “don’t have all of your eggs in one basket?” Well this can apply to your lending too! In this post, we are going to look into why it can sometimes be a good idea to use different lenders for your investment properties, and some points to consider when considering your options.
Cross-securing or cross-collateralisation is when a lender links multiple properties as security for a loan. This means if you have multiple properties with one lender, the lender will consider them all when working out how much you borrow. There can be pros and cons to this, so let’s take a look at a few things to consider.
Interest rates can fluctuate between banks, so if your lender has higher rates than others, and you have all of your properties with them, this could end up costing you significantly more in interest costs. This will not only have a huge impact on your cash flow, but your financial stability. However the flip side of this is that often times it will be in your best interests to have properties with one lender as they may offer a better options for servicing or lower interest rates.
Borrowing capacity can also play a huge role when you have multiple properties secured with one lender, as each lender has different calculation policies and different lending criteria. Most also have different maximum lending amounts, so by spreading your investments across different lenders you could potentially make the most of the differing criteria for your individual investment needs. For example, one lender might be happy to lend on a certain type of property, where another might not.
Another key factor to keep in mind is that if your personal home is cross-secured with investment properties, it could expose it to investment debt, should the worst happen. This means if you were to default on your investment lending, the lender has the power to sell your assets ….. which includes your family home. While a bank can still come for your family home if you are to default on payments, if it is not cross securitised against your investment properties, there is a process they need to go through rather than a forced sell.
When it comes to buying an investment property (or any property!), it's crucial to get the right advice when it comes to loan structuring and the lender that you choose. As you can see there could be some big impacts, should you make the wrong choice! Using a mortgage advisor allows you to lean on our expertise in this area and we can discuss the pros and cons of cross-securitising during our lending process. It's also a good idea to speak with your accountant and/or solicitor about structuring at this stage too. This allows for expert advice across all areas and ensures there are no surprises along the way.
We also have access to over 20+ lenders and hundreds of loan products, so are able to guide you to make the most of your borrowing power, while saving on costs as much as possible.
If you would like assistance in buying your next property, or would like us to review your current lending portfolio, simply get in touch.