Cross charging

Cross-charging to increase as lenders become 'hungrier' for business




Cross-charging is likely to become more common as lenders become "hungrier" for deals, a specialist distributor has claimed.

Last week, Together announced that it had introduced cross-charging to its range of regulated bridging products, enabling customers to secure finance against two properties. 

Now, Jo Breeden, managing director of Crystal Specialist Finance, has argued that other lenders are likely to follow suit in order to attract a fresh wave of deals.

“They aren’t particularly common as many lenders specialise in one particular area, however, [they] can be a very useful solution,” he stated.

“Lenders are becoming hungrier for business and therefore need to become more flexible and consider all properties owned.

“Borrowers will be looking to take advantage of opportunities, … especially borrowers with portfolios … looking to maximise opportunities available to them.”

However, Gary Bailey, sales director at Together, revealed that intermediaries also played a key role in the firm’s decision to introduce cross-charges.

“Having worked closely with our partners, we knew there was a demand for this, particularly in areas where high property prices can make it difficult for customers to take the next step on the property ladder.

“We were seeing that, for some customers, cross-charging their bridging loan would provide a viable option to allow them to quickly secure their dream property.”


Cross-charging could be used to purchase a new property before the existing one is sold

Unlike Jo, Kit Thompson, director of bridging loans at Brightstar, insisted that cross-charging was already popular in some areas of the specialist lending market.

“Cross-charging is most common in regulated transactions when the client is looking to purchase a new property, but hasn’t yet sold their existing property,” Kit explained.

“The other scenario where cross-charging assets is commonplace is when the client is purchasing an investment property and the borrower wishes to fund 100% of the purchase price.”

Kit suggested that this practice has happened frequently among both regulated and unregulated bridging lenders, and, like Jo, he believed that more lenders would begin offering cross-charges.

“…Lenders that do not currently offer cross-charging assets are likely to consider [it] on the basis that if your competition is doing it, you have to do it too to remain competitive.”


Cross-charging may lead to additional valuation costs

Despite having differed on the frequency of cross-charges, both Jo and Kit agreed that there were advantages to using them.

“The main advantage is by offering additional security, the loan to value is reduced and the client will benefit from cheaper interest rates,” Kit stated.

Similarly, Jo cited an example of a deal in which cross-charging had saved a deal from potentially falling through.

“We had a client who had a down-valuation on a purchase property due to required remedial works, however, we were able to cross-charge an existing buy-to-let to make up the shortfall and allow the purchase to complete.”

Although Jo conceded that cross-charges could incur additional valuation costs and complicate ownership of the property, Kit believed that this was unlikely to detract from the practice.

“The only slight disadvantage is the upfront costs will be higher … but this is more than offset against the cheaper interest rates.”

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