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Home » Bridging Loans » Types of Bridging Loan » Second Charge Bridging Loans

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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. 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. However, the secured loan may not be possible initially as, where heavy works are being undertaken on a property, many lenders are unwilling to lend.

Read on below to find out more.

Criteria

Below are the main criteria points to consider when taking out a second charge bridging loan.

1 Up to 70% Loan to Value (or 100% with additional security).
2 Non-status lenders available.
3 Rates from 0.75% per month.
4 Loans from £25,000 with no maximum loan size.
5 Borrow from 1 month up to 24 months.
6 Interest can be rolled into the loan.
7 Loans with no early repayment charges available.
8 We will consider any exit route.
9 Regulated or non-regulated.
10 Adverse credit accepted.
11 Loans available throughout the UK.
12 No early repayment charges.

How much can I borrow?

We can fund this method of finance from £25,000 with no strict maximum, with multi-million pound loans fairly common.

Your maximum loan amount is usually restricted by the loan to value and your chosen exit strategy.

Loan to value (LTV) is considered to be the total value of the borrowing secured against your property, not just the value of the bridging loan.

How much will it cost?

Our second charge bridging loans are available from 0.75% per month. In addition to the monthly interest charges, the lender will usually charge an arrangement fee of 2% of the loan amount.

Monthly interest can usually be added to the loan, meaning there are no monthly payments to make during the term of the loan. Should you choose to pay the interest monthly, this is usually possible, but the lender will require proof of income to ensure that the payments are affordable.

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.

What can second charge bridging finance be used for?

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.
  • 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

    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.

    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.

    about-the-author-gary-hemming

    About The Author

    This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.

    Gary Hemming CeMAP CeFA CeRGI CSP  -  
    Commercial Lending Director

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