Cross-collateralisation (also called cross-securing) occurs when a lender uses two or more properties as security for a single loan or group of loans. While it can appear to simplify borrowing, experienced property investors and mortgage brokers almost universally recommend against it. Here is why.
How Cross-Collateralisation Works
Instead of having Property A secure Loan A and Property B secure Loan B separately, a cross-collateralised structure uses both Property A and Property B as security for both loans. The lender effectively controls both properties as a combined security pool.
Why Cross-Collateralisation Is Risky
| Risk | Impact |
|---|---|
| Cannot sell one property without lender consent | Loss of control over your own assets |
| Lender can revalue the entire portfolio simultaneously | Forces equity calls across multiple properties |
| Refinancing is extremely difficult | All properties must move to the new lender together |
| If one property falls in value, LVR affects all loans | Can trigger forced sales or LMI calls |
| Lender has maximum leverage over your decisions | Reduces your negotiating position significantly |
The Alternative: Standalone Security Structures
The correct structure for portfolio investors is standalone security: each property secures only its own loan. When you want to access equity, you refinance or revalue that single property and draw equity via a separate loan or line of credit. This gives you full control over each asset independently.
Frequently Asked Questions
Does cross-collateralisation affect my ability to sell?
Yes. If your properties are cross-collateralised, you must get lender consent to sell any one property, as the sale affects the security pool for all loans. The lender can also redirect sale proceeds to pay down the loan rather than releasing them to you.
How do I get out of a cross-collateralised structure?
You need to refinance to a lender who will issue standalone security for each property. This requires a full valuation of all properties and may incur break costs if any loan is fixed.
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