One of the hidden dangers to investors looking to grow a portfolio is setting up their finance structures. This usually happens by new investors who do not seek professional finance advice, and assume going to their current bank is the easiest and quickest option to gain investment finance. Unfortunately, this usually leads (often unknowingly) to the portfolio entering a situation called ‘cross-collateralisation’.

Cross collateralisation is a finance structure where a single lender is used to finance multiple properties you own. This allows the lender to secure one property against the value of another in the portfolio, thereby tying the two assets together, financially. Unless absolutely necessary, this structure can be a hindrance to building and protecting a property portfolio by giving a single bank greater control over your assets.


A cross collateralised structure benefits the lender by providing it with greater security should you fall into financial hardship or try to manipulate the portfolio by purchase or sale. However, for the investor seeking to grow a portfolio, there are some significant drawbacks of this finance structure:

  • securing better rates on a single property is difficult as the selection of lending products is limited to that lender’s range only
  • the more loans held with a lender, the more likely that lender is to control which product is used OR limit the number of interest-only loans allowed. Using multiple lenders opens the investor to more loan products, rates and repayment types.
  • any increase in to the single lender’s interest rates and terms has an effect felt across every property in the portfolio using that lender. Different lenders have different strategies towards their lending policy, and not all will react the same to changing market conditions (for example, RBA announcements)
  • staying with a single lender prevents accessing a range of different servicing calculators, which otherwise may have opened up greater borrowing power and ‘fast-tracked’ the next purchase.
  • all properties in a cross collateralised structure must be revalued every time you want to purchase another property or increase a loan. This can incur multiple valuation fees, time expense, and more complex paperwork when making changes or additions to a portfolio.
  • accessing equity is difficult because an investor’s total equity position is considered, not just the single property in question. This can hurt the ‘equity release’ potential particularly if properties in the portfolio have not increased at the same rate. For example, Investment Property A might have increased in capital growth but Investment Property B has dropped in value. Therefore, the neteffect on the total portfolio value may be zero, and thus a lender won’t recognise the investor as having any equity available.
  • greater costs may be incurred through additional ‘lender’s mortgage insurance’ (LMI) if all debts are taken into account when working out total LVR with the lender. The larger the overall debt with a single lender, the higher the LMI that will be charged.

The above image illustrates an example of a cross-collateralised situation, whereby Lender X has been used to purchase Property A, and is now going to lend money for purchasing new Property B. In order to reduce the total loan risk, Lender X lists Property A as security on Property B’s loan documents, and vice versa. If the investor struggles to meet repayments of either property, the single lender has control over both assets in order to retrieve the capital.


Basically, wherever possible investors should seek stand-alone finance structures against all of their investment properties, so as none of them are linked in a ‘secured’ relationship. New investment properties should be purchased on loans that have an independent LVR and deposits that cannot be linked back to another property. This will happen by diversifying the lender panel used in the portfolio, despite whatever incentives or promises a single lender might offer to encourage a greater share of business.

Investors are encouraged to seek advice from an investment finance broker who can assist structuring loans and planning your portfolio’s future lending, in order to avoid the potential shortcomings of cross-collateralisation. Further, a broker has relationships and knowledge of a vast range of lenders and can provide a broader information on products, rather than investors directly going to their banks.