Cross Securitisation: Benefits & Risks

Cross securitisation, also known as cross collateralisation, is seen by many investors as a fast way to build up your property portfolio. By using cross securitisation you can increase your borrowing capacity, improve your access to equity and gain advantages in flexibility. However, while this financing structure might seem advantageous initially, it requires careful consideration to avoid potential pitfalls and is not often a strategy we recommend.

Whether building your first Perth investment property portfolio or expanding an existing one, understanding the implications of cross-securitisation is crucial.

What is Cross Securitisation?

Simply put, cross-securitisation is a financial strategy where multiple properties are used to secure one or more loans. In this arrangement, instead of having a loan securitised by one property, a loan will be securitised by multiple properties. It could also refer to multiple loans, such as two or three, securitised by a property portfolio.

While this arrangement might appear convenient, it can create unexpected complications, particularly when you’re looking to sell or refinance individual properties within your portfolio.

The Risks of Cross Securitisation

The primary concern with cross-securitised loans emerges when you decide to sell one of the properties which is securing your loan. In this situation, the lender will typically require a revaluation of all properties connected to the loan structure. Ideally, we want to avoid this situation at all times as this requirement can create several challenges:

• The revaluation process might reveal unfavourable changes in property values across your portfolio.
• Market fluctuations in different areas could impact your overall borrowing capacity.
• The bank might impose additional lending requirements based on the comprehensive review.

Strategic Alternatives to Cross Securitisation

To avoid the downfalls of cross securitisation, our team recommends maintaining separate loans for each property in your portfolio. This method offers several distinct advantages:

• Greater control over individual properties.
• Flexibility to sell properties without impacting other investments.
• Clearer visibility of each property’s performance.
• Simplified refinancing processes.
• Enhanced ability to navigate market changes.

Building Your Portfolio Strategically

You can successfully build your portfolio without the use of cross securitisation. Managing Director of Strategic Property Group, Trent Fleskens suggests the following expert strategy:

1. Structure individual loans for each property.
2. Utilise equity available to you by refinancing existing property loans back up to 80%.
3. Use the released equity as deposits for subsequent properties.

This approach ensures that when you decide to sell a property, the proceeds aren’t affected by the performance of other assets in your portfolio, providing greater financial flexibility and control.

Long-term advantages of this approach:

By maintaining separate loans for each property, you create a more resilient and flexible investment structure that can better weather market changes and adapt to your evolving investment strategy, with:

• Enhanced portfolio flexibility.
• Improved risk management.
• Greater control over individual assets.
• Simplified portfolio administration.
• More straightforward exit strategies when or if required.

Professional Guidance

While understanding these concepts is valuable, implementing them effectively requires expert knowledge of the current lending landscape. Perth’s property market presents unique opportunities and challenges, making professional guidance particularly valuable when structuring your investment portfolio. Consulting with experienced mortgage professionals who understand the Perth market can help ensure your investment structure aligns with your specific goals and circumstances.

Property Investment Strategy