Second Charge Bridging Loans

When it comes to bridging loans, there are different types to suit various circumstances. Second charge bridging loans can suit people with an existing mortgage on a property. This guide explains how they work.

What is a second charge bridging loan?

A second charge bridging loan is a type of short-term finance secured against a property. What sets it apart is that it sits behind an existing ‘first charge’ loan. 

It means that should the property ever need to be repossessed, the ‘first charge lender’ would be repaid first. In most situations this is a standard mortgage lender. Any remaining proceeds then go towards repaying the second charge bridging loan.

Who is eligible for a second charge bridging loan?

Borrowers must have a property that can be used as security, and the loan is subject to affordability assessments and credit checks. Lenders typically require a minimum loan-to-value (LTV) ratio and will assess the borrower on their ability to repay the loan.

When is a second charge bridging loan required?

There are several scenarios where a second charge bridging loan may be suitable. A common situation is when a borrower has an existing first charge mortgage on their property but needs additional funds for a specific purpose, such as home improvements, debt consolidation or to buy another property. 

Instead of refinancing the entire first charge mortgage, they can use a second charge bridging loan to secure the extra funds. It’s a way to access finance quickly without disturbing the existing mortgage arrangement.

What are the risks associated with a second charge bridging loan?

As with any form of borrowing, there are risks involved. The main risk is that the borrower is unable to keep up the repayments on the loan, and potentially loses their property through repossession. 

Bridging loans are fairly expensive compared with a mortgage, and if you are unable to repay the borrowing quickly, the interest can roll up rapidly. 

How long does it take to get a second charge bridging loan?

Bridging loans are generally a quick source of finance. If all the documentation is in order and the lender’s criteria are met, it is possible to complete the loan process within a few days. Exact timing can vary depending on the complexity of the case, the lender’s workload, and the specific underwriting process.

Can a second charge bridging loan be used for any type of property?

Second charge bridging loans can be used on residential, commercial or mixed-use properties. Each lender may have specific criteria on the types of properties they will consider for a second charge loan. 

Seek advice from a mortgage broker on the available options and for help in finding a suitable lender for your specific project.

What are the loan-to-value restrictions on a second charge bridging loan?

Loan-to-value (LTV) restrictions for second charge bridging loans can vary depending on the lender and the borrower’s circumstances. It is usually possible to find an LTV of up to 60% or 70%, but the size of the existing first charge loan will be a factor in the loan amount.

Generally, second charge LTVs are lower than on first charge bridging loans because of the additional risk to the lender.

What happens if I can’t repay the second charge bridging loan on time?

Not repaying the second charge bridging loan on time can have serious consequences. The lender has the right to take legal action and could repossess your property to recover the debt. 

The first charge lender will be repaid first from the proceeds of the property sale, with any remaining funds going towards repaying the second charge bridging loan.

How does a second-charge bridging loan differ from a first-charge bridging loan?

The key difference is the order of priority for repayment if the property is repossessed. A first charge lender must be repaid in full before the second charge bridging loan is settled.

It is crucial to understand the risks involved, so always seek professional advice to ensure that a second charge bridging loan is the right financial solution for your specific situation.

As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments. Think carefully before securing any other debts against your home.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

The Financial Conduct Authority does not regulate commercial buy to let mortgages
The financial conduct authority does not regulate tax advice.

Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.

Some Bridging Loans are not regulated by the Financial Conduct Authority

If you are an incorporated entity this will be outside of credit broking regulations. If you’re a sole trader, individual or small partnership we act as a credit broker