Collateral/ cross securitisation

i know it's not good to cross securitise when purchasing property but what about using your ip as collateral on an equity loan to finance a granny flat?

 

You still wouldn't do it.

What if the valuation one the crossed property comes back low?

What if you want to sell or refinance one of the properties and you get a low valuation on the other property?

Why wouldn't you just simply do an equity release and set it up as a seperate facility so you can easily track the deductibility of the equity release loan?

You are making it hard for yourself to grow your portfolio and only making it easier for the lender to keep you in the one spot.

 

I'm not entirely sure you've asked a question about cross collateralisation.

Cross collateralisation occurs where you provide more than one title to secure the loan.

You can take an equity loan secured by your IP, then use the cash to build the granny flat. There's no cross collateralisation here as the loan is only secured by the title of the IP. There's no additional property securing the equity loan, only the IP, hence no cross collateralisation.

Good practice would be to have the equity loan as a separate account to any other loans against the IP. This would allow you to clearly assign interest to the GF for tax purposes.



If you're going to use an equity loan as a deposit for the GF, with the remainder being funded via a construction loan against the GF, then the right way to structure it depends on the bigger picture. There's still no need or reason to cross collateralise.


If the GF is on the same title as the GF, then cross collateralisation doesn't exist as there is only a single title.

 

Do you mean borrowing against an existing IP to fund a GF that you're building at the back of said IP? If so - it's not cross coll. It's a standard way of financing a GF build.

Another option - and one that may provide less hassle is to simply release equity against a property to fund the construction (providing the equity is there to access) as Shahin mentioned above.

Cheers

Jamie

 

Yes - an existing title to do improvements on the same title is fine.

 

So originally I got an equity loan to buy an ip but changed my mind to build a GF instead. The bank said the property would be collateral. So I just wanted to make sure if it's ok to use the loan against the same IP to build a GF on said IP. From what I read I guess it's ok

Thanks guys for the replies!

 

It depends - if you need extra funds for the GF build, it's likely the bank will want to cross secure the GF property to the property getting the equity, it's just what they do.

It's definitely not the ideal way to do it though.

If it's just the equity loan and that's enough to fund the build on it's own, you'll be fine.

 

You're building the GF at the back of the existing IP which has been used as security for the equity loan used to fund the GF.

There's only one property here, the IP. You're improving the existing property buy putting a GF on it. There's no cross collateralisation.

 

Sorry, completely misread this! As Pete says, it's fine