2nd charge bridging loans explained
What is a second charge bridging loan?
A second charge bridging loan is a short-term lending product which is secured against a property that already has a mortgage outstanding.
Second charge refers to the fact that the lenders charge over the security property ranks behind the main mortgage lender and has second priority.
When can they be used?
If you’re looking to raise funds to do a loft conversion, extension, or other improvements to your property and already have a mortgage outstanding, this would enable you to raise the required funds. As your main mortgage is not being repaid, the early repayment charges would not be paid, meaning a significant saving.
Once the works are complete, a refinance onto a secured loan would be possible, moving the debt to a lower interest rate.
Alternatively, second charge bridging is often used to raise funds to repay debts or arrears prior to the sale of a property.
Are there any other uses?
Each loan is different and there are a number of uses for these loans. The most common are:
- You’re looking to raise funds but can’t remortgage as you are still in your early repayment charge period and would incur penalties for doing so.
- You’re looking to raise funds to refurbish your property before you sell.
- A business transaction has come up which would generate a profit and funds are required to move quickly.
- Urgent funding is needed for an unrelated issue such as paying probate or inheritance tax costs.
We can offer this type of funding for almost any purpose. If you’re unsure whether your requirement would be suitable, our team are available to talk through your requirements and we’ll let you know whether you’d qualify immediately.
What are the benefits of a second charge bridge?
These loans allow you to raise funds quickly, while benefitting from flexible lending criteria. This can be done without the need to repay your existing mortgage lender, which can often mean money saved on early repayment charges.
These loans may be available where your existing mortgage lender is not comfortable lending. This is because income details are not required where the exit strategy is sale of the property.
Of course, this type of lending is a short-term option and should only be considered where a solid exit strategy is in place.
Key product features
|Max LTV||Up to 70%|
|Interest rate||From 0.69% per month|
|Charge types||2nd & 3rd considered – full charge or equitable|
|Term||1-24 months (maximum 12 months for regulated loans)|
|Interest type||Added to the loan, deducted or serviced|
|Completion timescale||5 days – 3 weeks|
- Residential, commercial property or land acceptable
- Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
- Minimum applicant age 18 years – no maximum age
- Available in England, Scotland, Wales and Northern Ireland
- Adverse credit accepted (on a case by case basis)
- Loans from £25,000 with no maximum loan size
Second charge bridging loan criteria
Who can take out a 2nd charge bridging loan?
We’re happy to offer loans to individuals, partnerships, LLPs, Ltd companies, pensions, offshore companies and trusts.
What term can you offer?
We can offer unregulated bridging loans for a maximum of 24 months, although 18 is more common.
Regulated bridging loan terms are restricted to a maximum of 12 months.
How much can I borrow?
What are your minimum and maximum loan sizes?
We can fund this method of finance from £25,000 with no strict maximum.
What is your maximum loan to value?
We can offer a maximum LTV of 70% for second charge applications, subject to your exit strategy being acceptable.
How will my application be assessed?
The key considerations when lenders are assessing your application is the loan to value (LTV) and the security offered.
Where the LTV is low and the security is strong, the application process tends to be far simpler. This is because the loan is considered to be lower risk for the lender.
They will then assess the property using a valuation report, produced by a chartered surveyor.
Depending on the planned exit, the lender may also want to see the following:
- Proof of income
- An agreement in principle for your proposed refinance
- Details of works to be completed where refurbishment is planned
How much will it cost?
What interest rate will I pay?
We can offer rates from 0.69% per month, with rates of 0.75% being common.
The lowest rates are usually reserved for the lowest risk applications, which means those secured against strong security at lower loan to values. Applications at 50% LTV and below will usually achieve the best interest rates.
Are there other costs to pay?
Yes, on top of the interest paid, you will usually pay all, or some of the following:
Lender arrangement fees – these fees are charged by the lender for setting up the loan and are usually 1-2% of the loan amount. They can often be added to the loan, should you choose to do so.
Lender exit fees – not all lenders charge an exit fee, in fact it is becoming less common. Where charged, this fee falls due when the loan is repaid and is usually either equivalent to 1 month’s interest, or 1%, depending on the lender and their fee structure.
Valuation fee – this fee is payable early in the application process and can’t be added to the loan.
Legal fees – You are usually responsible for both your own, and the lenders legal costs in arranging the loan. These fees are payable towards the end of the application process, usually split into 2 parts – some when the solicitor begins their work and the balance on completion.
In addition to the above, lender lead fees, many brokers charge a fee for their service. Where charged, broker fees are usually 1-1.5% of the loan amount, or a set fee. We don’t charge a fee for our service.
Will I have to make monthly payments?
Where you would like to, you’re able to pay your interest monthly, however, it is usually rolled into the loan and paid off at the end, when the loan is repaid.
When choosing to pay the interest monthly, you will be expected to prove that this is realistic as part of the application process.
How long do second charge bridging loans take to complete?
We can usually complete the process in 5 – 14 days, where consent from the first charge lender is forthcoming. Where first charge lenders are unwilling to consent to a second charge, we have lenders who can still lend using an equitable charge to secure the loan.
Delays in receiving consent from the first charge lender are common, which can add significant time to your application. It’s best to contact your existing lender early to request consent, ensuring the impact of any delays is minimal.
Will my first charge lender have to give consent to a second charge?
Although this is not always the case, consent to a second charge is usually required to allow the lender to register their charge against the property.
Where this is not possible, some lenders can lend without this, and will register their interest using an equitable charge.
When a lender is using an equitable charge, the interest rate may increase due to higher risk.
When looking at why consent is required, the issue is a legal one. To secure the loan against the title of your property, the lender must note their interest with a legal charge on Land Registry. This can only be done with the consent of the first charge lender, as their charge acts as a restriction on the title.
Can you offer bridging loans for people with bad credit?
Bridging finance lenders are generally more flexible than residential mortgage or buy to let lenders.
Not all are willing to offer second charges to those with bad credit. As the market is already limited, some borrowers with adverse credit may find it harder to secure this type of loan.
This is especially true of applications where the planned exit strategy is to refinance to a term loan. In this case, the lender will want solid proof that the refinance will be acceptable to the proposed new lender.
Despite the above, we can still offer loans to people with adverse credit history in many cases.