There’s always been a lot of jargon used in the finance world, but a ‘cross collateral bridge’ has to be one of the best!!
A cross collateral bridge is a type of bridging loan that allows borrowers to secure funding using multiple properties as collateral, or security.
This financing option is suitable for individuals and businesses who need short-term funding but do not have enough equity in a single property to secure a traditional loan.
In this article, we will explain what cross-collateral bridges are, how they work, and how to decide if it is a good choice for your financing needs.
btw – They are also called cross-charge bridging loans.
Table of Contents
- What is a Bridging Loan?
- What does cross-collateral mean?
- How does a cross collateral bridge compare to a normal bridging loan?
- Who would need a cross collateral bridge?
- What types of property are suitable?
- Can unmortgageable properties be used as security for a bridging loan?
- Where’s the best place to get a bridging loan?
- To summarise
What is a Bridging Loan?
A bridging loan is a type of short-term loan that is secured against a property. It is extremely flexible and is designed to provide you with quick access to funding when you need it most.
Bridging loans are generally available for terms of 3 months to 24 months and do not require monthly payments. Instead, you pay everything back at the end of the loan term. Learn more about successful strategies for repaying a bridging loan.
Lenders will normally lend up to 75% of a property’s value, using a first charge.
Bridging loans can be used for a variety of purposes, such as purchasing a new property before selling your existing one, financing an auction purchase, or buying a business. They may also be used by businesses to cover short-term cash flow gaps or finance the purchase of equipment or stock.
The main advantages of bridging finance is that it is quick and (relatively) simple to arrange, funds can be used for any purpose and lenders will accept almost any type of property.
Bridging Loans Guide
In this guide, we will provide an overview of bridging loans and offer some tips on how to get the best deal when looking for short term finance.
Bridging Loans
Bridging loans are a popular way to raise finance quickly and easily for a variety of purposes, including buying a new property before selling your old one, carrying out refurbishments, or even raising working capital for a business.
What does cross-collateral mean?
Cross-collateral refers to the use of multiple properties as security for a single loan.
When you take out a cross-collateral loan, you pledge more than one property as security.
This means that if you default on the loan and are unable to repay it, the lender has the right to seize and sell any of the properties that were used as security/collateral in order to recoup the debt.
The bridging lender will take a separate legal charge against each property but link them to one loan application.
This is the cross-charge part.
Using multiple properties can be a useful way to secure a larger loan or to spread the risk of the loan across multiple assets. The additional security can sometimes help to negotiate a more competitive interest rate.
The properties can also be of mixed types; residential, buy to let, holiday let, commercial etc.
100% lending with cross-collateralisation
For short-term loans, each lender will want to cap their exposure to 75% LTV for a particular property.
So how is it possible to secure 100% funding to buy a new property with no money down?
This method requires ownership of another property, that has sufficient equity to support the 25% needed to fund the deposit for a new purchase. There are a few different ways for the loan debt to be structured, but essentially 100% funding needs a minimum of two properties for a lender to secure loans against.
A mortgage adviser will be able to work through the options to identify the most cost effective solution.
Not on the High Street!
The high street lenders can’t help every mortgage customer and they prefer the simple, low-risk ones.
If your situation is a bit different or needs a more personalised solution then our brokers can help.
Expert advice, for all situations.
Bridging Loans
The most flexible of secured loans and often misunderstood. Bridge loans can be used in so many different ways and can be arranged super fast.
Large Loans
High net worth mortgage brokers understand complex large loans and unique situations and can source bespoke deals from the right lenders.
Let to Buy
Let to buy combines a buy to let remortgage with a residential mortgage. Allowing you to move house while keeping your current home.
How does a cross collateral bridge compare to a normal bridging loan?
A cross collateral bridge is similar to a normal bridging loan in that it is a short-term loan that is secured against a property and is designed to provide quick access to funding.
However, there are some key differences between the two types of loans:
Security: A normal bridging loan is secured against a single property, while a cross-collateral bridge is secured against multiple properties.
Loan amount: The amount you can borrow with a normal bridging loan is based on the value of the property offered as security, while the amount you can borrow with a cross-collateral bridge will be based on the combined net value of the multiple properties.
Risk: Using multiple properties as collateral can increase the risk of a loan, as you may lose more than one property if you default on the loan. However, it can also spread the risk of the loan across multiple assets, potentially reducing the overall risk for the lender.
A normal bridging loan may be a good option if you have sufficient equity in a single property, while a cross-collateral bridge is a better choice if you need to borrow a larger amount or want to spread the risk across multiple assets.
Who would need a cross collateral bridge?
There are several situations where you may need a cross-collateral bridge:
You need to borrow a large amount of money and do not have a single property with sufficient value to serve as collateral.
For example, you may want to borrow £300,000 to finance the purchase of a new business, but the property you own is only worth £300,000. By offering another property, the lender has more equity to secure the desired loan against.
You want to spread the risk of the loan across multiple assets.
For example, you may own a few rental properties that are all fully paid off, and you want to use them as collateral to secure a loan. A cross-collateral bridge would allow you to use all of the properties as collateral, rather than just one.
You need to make an urgent payment and do not have the time to obtain a traditional mortgage.
You may have received a large unexpected bill that must be urgently paid, but you don’t have the funds available. A cross-charge bridge would allow you to borrow the money quickly, utilising charges against one or more of your properties.
You need to finance the purchase of equipment or stock for your business.
For example, you may need to purchase a new vehicle or make a large order of raw materials, and you don’t have the cash on hand to pay for them. A bridge would allow you to use your business property or other assets as collateral to secure the funds you need.
Or you are facing a short-term cash flow gap and need access to funding quickly.
You may have a large contract coming up in a few months that will provide a significant influx of cash, but you need funds to cover expenses in the meantime. A cross-collateral bridge would allow you to borrow the money you need, until your cash flow improves.
Flexible solutions
Whether or not more than one property can be used will be down to the lender and the underwriter.
Bridging lenders are known for their flexibility and willingness to lend if a deal ‘stacks up’. It is obvious that you cannot borrow 100k if the available equity is only 100k (or less).
Where a single property application moves towards the maximum loan to value, or perhaps the property was valued at an unexpected lower figure, the ability to bring another property to the table can change the deal dramatically.
What was previously a borderline case is now a very strong lending proposition, with improved security, and a reduction in the monthly interest rate!
What types of property are suitable?
When you take out a bridging loan, you can use a variety of different types of property as collateral. Some common options include:
Residential properties: Main residence, buy to let rental properties, holiday lets or holiday homes.
Commercial properties: You may own a business that has a commercial property, such as an office building or warehouse.
Semi-commercial properties: A commercial property that also has private living accommodation, such as a shop with a flat above or a pub with owners accommodation is classed as semi-commercial or mixed-use.
Land: If you own a large piece of land with significant value, you can use it as collateral for a bridging loan.
Agricultural property: If you own a farm or other agricultural property, this can be put forward as security.
It’s important to note that the value of the property and the amount you can borrow will depend on the lender’s policies and your creditworthiness.
Can unmortgageable properties be used as security for a bridging loan?
Unmortgageable properties are properties that are not eligible for a standard mortgage due to their condition, location, or other factors. Typically this would mean that it lacks a working kitchen, or bathroom, or both. In essence, it is not fit for someone to live in.
Some examples of unmortgageable properties include:
Properties in disrepair
A property that is in need of significant repairs, such as a dilapidated building or a home without a bathroom, will be considered unmortgageable by traditional mortgage lenders.
They need the house to be suitable for occupation as soon as the mortgage completes.
Properties OF NON-STANDARD CONSTRUCTION
Standard construction would normally involve brick or stone walls with a slate or tile roof.
Anything that moves away from this can cause issues with mainstream lenders. This would include timber buildings, cob, mundic, and concrete to name just a few.
Properties that need planning
When you purchase a property, your solicitor will check to see that any relevant planning permission has been granted and the building regulations complied with. If you purchase a property which is not compliant then this could affect your ability to get a mortgage on the property.
Experienced investors can see the potential in a property, or a piece of land, once new planning permission has been granted to build or develop the plot. However, mainstream lenders will not want to be involved in these projects. Planning gain is a strategy that involves buying an asset before planning has been granted, and then benefitting from the value uplift (gain) when it is approved.
Some lenders will see the benefit and offer to fund the purchase via a planning gain bridging loan.
These problem properties may still be eligible for a bridging loan, however, as bridging lenders are a lot more flexible than traditional mortgage lenders and are willing to lend on properties that are considered unmortgageable by others. Bridging loans on unmortgageable properties may have higher interest rates, fees, and deposits compared to standard mortgages, and the lender may only lend a smaller percentage of the property’s value.
Where’s the best place to get a bridging loan?
There are several options for obtaining a bridging loan, including going directly to a lender or using a broker. However, using a broker is often the best option, as they can provide you with expert advice and a wide range of options to choose from. You will find that the options for a cross collateralised loan are quite limited without the help of a finance specialist.
Here are a few reasons why using a broker is generally the best way to get a bridging loan:
Expert advice
A good broker will have extensive knowledge of the bridging loan market and will be able to advise you on the best options based on your specific needs and circumstances. They can help you understand the different types of bridging loans available, the fees and interest rates involved, and the pros and cons of each option.
Wide range of options
A broker has access to the widest range of bridging loan lenders, including both mainstream and specialist lenders. They’ll be able to suggest deals that allow loans to be secured against one or more properties, getting you the funds you need. It is possible to get a bridging loan with bad credit and a broker will steer you towards a successful application.
Comparison shopping
A broker can help you compare the terms of different bridging loans from multiple lenders, making it easier for you to find the best deal. They can also negotiate on your behalf to get the most favourable terms possible.
Streamlined process
Using a broker can streamline the process of getting a bridging loan, as they can handle much of the paperwork and communication with the lender on your behalf. This can save you time and hassle, allowing you to focus on other important tasks.
Will it be cheaper going direct?
Mortgage brokers will charge a fee for their services and this can put some people off.
A brokers fee is to cover the time required to find you the best deal and then arrange it for you. Your broker will be able to access lenders that will offer more money than others, or be able to process the loan quicker than others, or perhaps charge a cheaper interest rate than others. Usually some or all of these will be important in securing a deal or raising some cash, making the brokers fee a worthwhile investment.
To summarise
When you need a bridging loan, it’s important to find the best option for your needs. One of the best ways to do this is by using an independent broker, who can provide expert advice and access to a wider range of options. With a broker on your side, you’ll have the knowledge and resources you need to make an informed decision about your bridging loan.
Using a broker can also streamline the process of getting a bridging loan, saving you time and hassle. They can handle much of the paperwork and communication with the lender on your behalf, making it easy for you to get the funds you need.
Short-term lending solutions that need to be secured on one or more properties require an experienced adviser for the best results. So if you’re looking to cross that financial bridge, consider using a broker to help you find the right bridging loan.
As the famous saying goes, “Give a man a bridge, and he’ll be able to cross rivers for a day. Teach a man to build a bridge, and he’ll be able to cross rivers for a lifetime.” Don’t get left on the shore – use a broker to find the bridging loan that’s right for you.
