Investors and developers often require swift access to substantial funds.
Cross charge bridging loans offer a robust solution, enabling borrowers to utilise multiple properties for larger, more flexible short-term financing.
This article will guide you through the essentials of cross charge bridging loans, helping you assess if this financial product could be the key to maximising your property portfolio’s value.
What Are Cross Charge Bridging Loans?
Cross charge bridging loans are a specialised form of short-term property finance that allows borrowers to use multiple properties as security for a single loan.
Unlike standard bridging loans, which rely on one property as collateral, cross charge loans distribute the security across two or more assets.
This approach can significantly increase borrowing capacity and potentially offer more advantageous terms.
These loans typically span 3 to 24 months, with amounts starting from £150,000 and potentially reaching £10 million or more for high-value transactions.
A wide range of properties can serve as security, including residential homes, commercial buildings, and mixed-use developments. This versatility makes cross charge bridging loans particularly attractive for diverse property portfolios.
Why are they needed?
Virtually all bridging loans can go up to 75% LTV of the secured asset. This is an LTV that most lenders are comfortable with.
But what if you needed to borrow 80%, 90% or even 100% of the property purchase price?
Now we do have access to some lenders that will look at deals at 90% LTV, but no lender will offer 100% without additional security.
The elusive 100% LTV bridging loan.
This is where a 100% LTV bridging loan is possible. You bring another property asset into the deal, and let the lender take a charge over this as well.
If the numbers add up, you can borrow 100% of the purchase price of the new property, with the new loan secured over two different properties.
How Cross Charge Bridging Loans Work
The application process for a cross charge bridging loan begins with an initial enquiry and assessment. Brokers will evaluate the proposed deal, considering the properties offered as security, the loan amount required, and the borrower’s exit strategy.
The loan structure involves spreading the charge across multiple properties.
For example, if you own three properties worth £500,000 each and need to borrow £1 million, the lender could take a first charge on all three properties. From the lending risk perspective, the LTV is 66%. £1 million loan spread over three assets worth £1.5 million combined.
This structure allows for greater borrowing power while managing risk for the lender.
All other aspects of a bridge loan will be the same. For example; fees, loan term, exit strategy etc.
Benefits of Cross Charge Bridging Loans
The primary advantage of cross charge bridging loans is the increased borrowing capacity.
By using multiple properties as security, you can access larger loan amounts than you might with a standard bridging loan. For instance, you might secure a £2 million loan using three properties worth £1 million each, whereas a single property might only allow you to borrow up to £750,000.
Another benefit is the potential for lower interest rates.
Lenders often view cross charge loans as lower risk due to the spread of security, which can translate into more competitive rates for borrowers. While rates vary based on individual circumstances, you might find cross charge rates 0.1% to 0.3% per month lower than standard bridging loan rates.
The flexibility in property usage is another significant advantage.
You can combine different types of properties to create the most advantageous loan structure. For example, a property investor might use a combination of a high-value South London residential property and a commercial unit in Manchester to secure funding for a new development project in Birmingham.
Speed is often essential in property transactions, and cross charge bridging loans can be arranged quickly. In the UK market, it’s not uncommon for these loans to be completed within 7 days, allowing borrowers to act on time-sensitive opportunities.
When to Use Cross Charge Bridging Loans
Cross charge bridging loans can be particularly useful in several scenarios.
One common use is resolving property chain issues. If you’re in the process of selling one property but need to complete the purchase of another quickly, a cross charge bridging loan can provide the necessary funds using your existing properties as security.
Auction purchases are another prime example. UK property auctions typically require completion within 28 days, a timeframe often too tight for traditional mortgages. A cross charge bridging loan can provide the quick funding needed to secure an auction property, using other assets in your portfolio as collateral.
Property development projects, especially larger ones, can benefit significantly from cross charge bridging loans. The ability to leverage multiple properties can provide the substantial funding required for major renovations or new builds. For instance, a developer might use two completed properties in their portfolio to fund the purchase and development of a new site.
UK businesses also use cross charge bridging loans for short-term cash flow needs. By using their property assets, companies can quickly access capital for business expansion, equipment purchases, or to bridge gaps in cash flow.
Let’s talk bridging loans!
Eligibility Criteria
Eligibility for cross charge bridging loans depends on several factors.
The properties used as security need to meet minimum value requirements and be in good condition. Location can also play a role, with some lenders having preferences or restrictions on certain areas.
While credit scores are considered, they’re often less critical than in traditional lending. Lenders are more focused on the value of the security properties and the viability of the exit strategy. However, a strong credit history can help secure better terms.
The exit strategy is always a crucial element of eligibility. Lenders will want to see a clear, realistic plan for repaying the loan, whether through property sale, refinancing, or another method.
For UK residents, obtaining a cross charge bridging loan is generally straightforward. However, options are also available for foreign nationals and UK expats, although additional checks will be required, and terms might differ.
Read more: Understanding Bridging Loan Criteria & Eligibility
Second Charge Lending
What if you already own a property that is mortgaged?
Presuming that the main mortgage is remaining, you could approach lenders who are happy taking a second legal charge, rather than a first charge. From a lender’s perspective, this is a bit more risky, so the interest rate would be higher.
But second charge bridging loans are a good way of utilising equity, via a cross charge, without disrupting the main mortgage.
Do all lenders offer cross-charges?
There will undoubtedly be some lenders that don’t want to account for two properties for a loan application.
But short-term lenders are in the market to do deals and lend money.
Most will be interested, and this goes for bridging loans, commercial loans and development loans. It’s a way of lending more money and perhaps lowering the overall risk by reducing the LTV percentage.
How we can help
You won’t always want to offer up two properties when applying for a bridging loan. Knowing when to do this is where we can help.
A cross collateralised loan might be the right option at the time, but it will mean the second property then has a legal charge against it. This will affect your ability to borrow in the future.
Let our experienced brokers analyse your current situation and see what’s possible. It may be that we can raise the funds you need without additional security.
But if it is needed, we have access to flexible lenders and competitive terms, as we deal with over 250 lenders, with more added each month.
