Second Charge Bridging Loans

What is a second charge bridging loan?

A second charge bridging loan is a type of short-term loan secured against your property that you already have a mortgage or "first charge" on.

The "second charge" part means that an existing mortgage, or an additional loan, sits behind the second charge.

So, for example, you already have a mortgage on your home, and you take out a bridging loan (to buy another property or make another purchase) that's also secured against your home, making it a 'second charge'. 

This means that your bridging loan will be second in line to be prepared if you default on your repayments and your house is sold to repay your debts - your first charge (your mortgage) will have priority to be repaid first, and then your bridging loan second.

Second charge bridging loans function almost identically to other types of bridge loans - they are primarily for allowing borrowers’ access to funds to make a property transaction before an existing property has sold - alongside many other uses. 

Second charge bridge loans can only be facilitated if enough equity remains in the property for borrowing purposes.

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What’s the difference between first charge and second charge?

If you take out a bridge loan against a property that already has a mortgage, the loan will be designated as a "second charge" against the property – this shows the order in which lenders will be repaid first, with the mortgage taking priority as the "first charge".

The difference is simply the order of repayment and priority – this is what it means when a loan of any type is referred to as the first or second charge.

Check out our detailed second charge bridging loan case study below:

How do second charge bridge loans work?

Similarly to a second charge mortgage, a second charge bridge loan can be applied for if there is enough equity in the property to borrow against – while separating the existing mortgage on the property; both are to be repaid individually.

Here's how it works:

• Second charge bridge loans typically require a specialist lender to facilitate, so the first step is finding a suitable lender.
• Once a lender is found, the lender will need to determine the value of the property and the borrower's credibility and ability to repay the bridge according to the terms set. 
• Once approved, a borrower will be offered a loan based on the equity available in the property. Because bridge loans are secured with collateral – i.e. the property – if it cannot be repaid, the lender can repossess the property.
• Significantly, with second charge bridge loans, the order of priority is shifted. If a loan cannot be repaid, the first charge against the property must be repaid before the second charge.
• With a solid exit strategy in place and the means to repay the bridge loan within the term, the borrower can use the money from the second charge bridge loan for whatever purposes they have for the loan.
• With bridge loans, the term of repayment is much shorter than traditional borrowing – usually ranging from 12 to 18 months – and the additional fees and higher interest rates must be factored in beforehand, as bridge loans are generally more expensive monthly than repaying a mortgage – this is especially important with a second charge as you are now paying two separate loans off. 

Bridge loans are typically repaid by selling the property they are taken out against, or selling a separate property you own. Or, you can refinance.

With second charge bridge loans, you'll need to continue paying your mortgage monthly while the second charge bridge loan will be repaid separately.

What are second charge bridge loans used for?

Much like any bridge loan, a second charge bridge loan is versatile, allowing a borrower a great deal of flexibility regarding usage and how quickly they can act in time-sensitive property transaction scenarios (such as buying a property at auction, or where your property chain falls through).

Here is a short list of uses a second charge bridge loan has:

• Property purchases – second charge bridge loans are primarily used to purchase a new property to be repaid through the sale of the property the loan is taken out against. You can get a second charge bridge loan for buy-to-lets, HMOs, and residential and commercial property.
• Property development – a second charge bridge loan can be used for light or heavy refurbishments to a property, or a full-scale development project, funded through the equity that a bridge loan provides. 
• Business purposes – With a second charge bridge loan, you can pay an HMRC tax bill, expand your business premises with a property purchase, or fund a deposit for a purchase. If you own a business, a bridge loan is a great alternative to release equity and allow you quick access to funds for use in business purposes. 

Here's our Head of Bridging, Sam O'Neill, explaining how a bridging loan can be used to fix a chain break: 

Are second charge bridging loans regulated?

Second charge bridging loans for residential property that you or a family member will live in are regulated in the UK by the FCA (Financial Conduct Authority), while a bridge loan taken out for property investment or for purchasing a property for commercial use would be unregulated.

The FCA ensures borrowers are protected when dealing with lenders. They do this by overseeing and ensuring lending standards are adhered to and ensuring that affordability assessments are made or if a loan is suitable for that particular individual or business. 

Unregulated loans are not necessarily riskier or without rules and regulations – they have different rules and are taken out for purposes outside of purchasing a residential property. 

Before taking out a second charge bridge loan, it is a good idea to seek the help of an expert bridge loan broker who can determine whether it is the right option for you. 

Even though second charge bridging loans are regulated, seeking financial advice for important property finance decisions is always best.

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How much can I borrow with a second charge bridging loan?

Second charge bridge loans typically start at £50,000 and have no absolute upper limits.

You can get an LTV (Loan-to-Value) of 80% - potentially more with other assets considered.

That being said, the amount you can borrow with a second charge loan will ultimately depend on the amount of equity within your property, alongside a lender's criteria, as this can vary between lenders.

A lender will offer a loan that is a percentage of your property's value–this is referred to as LTV.

It's important to remember that bridge loans can be expensive, with additional fees and higher interest rates than traditional borrowing such as a mortgage (however, you're not paying them for as long) – and with a second charge bridge loan, you'll be paying your monthly mortgage payments alongside paying off a bridge loan. 

Your repayment ability and credit history may also determine the amount you can borrow. 

You can get an indicative quote using our bridge loan calculator and a general idea of the overall cost of the loan you require.

Need a second charge bridge loan?

At Clifton Private Finance, we can facilitate a second charge bridge loan via several specialist lenders across the entire short-term market, lenders who are not typically available through the retail market.

Whether you are a property developer, investor, or a novice – we can quickly get you a decision in principle. With our expertise and depth of knowledge, we can find you an appropriate lender with favourable rates.

We can help by:

• Comparing the market on your behalf and finding the best offerings from various lenders.
• Negotiating and chasing up issues with lenders.
• Helping you through the entire application process.
• Organising valuations while liaising with your solicitor regarding paperwork.
• Chasing up your application until you see funds delivered to your bank account - as quickly as possible.

Call us on 0117 313 5126 to discuss your requirements.

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 FAQs

Can I remortgage to pay off a second charge bridge loan?

Yes – you can remortgage your property to pay off a second charge bridge loan. You may wish to remortgage with a new lender or switch to a more favourable mortgage product from your existing lender. However, your eligibility to remortgage to pay off a second charge loan may vary with lenders as they'll need to see that you can repay over the required term. It's recommended to speak to an advisor for more complex situations like this.

Can a lender refuse a second charge?

Lenders may refuse an application if you are unsuitable for a second charge bridging loan – this may be due to the loan's affordability and your ability to repay. Additionally, if your property's value does not meet the lender's criteria for the required loan amount, you may also be refused.

Can I have multiple second charge bridge loans?

While having multiple loans taken out against your property is possible, it's not always advisable. This could adversely affect your credit score and future ability to get a loan from a lender. When making important financial decisions, you should consult an expert to get the proper guidance regarding multiple second-charge bridge loans.

How much interest is paid on a second charge bridging loan?

Interest rates are higher with all types of bridge loans compared to standard mortgages – this is due to their short-term nature and to mitigate risk for the lender. Interest rates will vary from lender to lender, but a second charge loan will not necessarily be impacted by the first charge on the property when it comes to interest rates - it depends on the specific case.