2nd Charge Bridging Loan – How it Works

A 2nd charge bridging loan is a form of short-term loan that is secured by your existing mortgage or “first charge” on the property.

Below we will explain just how it works, so you are able to make an informed decision on whether this type of financing is right for you.

NOTE – 2nd charge bridge loans can only be made if there is adequate equity in the property to borrow from.

What is a 2nd Charge Bridging Loan?

A second charge bridging loan is a form of short-term loan that is secured by your existing mortgage or “first charge” on the property.

The term “second charge” refers to an existing mortgage or supplementary loan that sits behind the second charge. So, for example, suppose you already have a mortgage on your home and take out a bridging loan (to buy another property or make another purchase) that is also secured against your home, resulting in a ‘second charge’.

This implies that if you default on your payments and your house is sold to settle your obligations, your bridging loan will be prepared second, after your first charge (your mortgage), which would be reimbursed first, followed by your bridging loan.

Second-charge bridging loans function essentially identically to other types of bridge loans; they are primarily used to provide borrowers with access to funds to complete a property deal before an existing property is sold, among many other things.

Understanding the Functioning of 2nd Charge Bridge Loans

Just like a second-charge mortgage, a second-charge bridge loan can be obtained if there is sufficient equity in the property to leverage – this keeps the current mortgage on the property distinct; both are to be paid back separately.

This is how it works:

• Second-charge bridge loans are normally facilitated by a specialist lender; thus, the first step is to choose a suitable lender. Once a lender has been selected, the lender must determine the property’s value as well as the borrower’s reliability and ability to repay the bridge in accordance with the terms agreed upon.
• Once authorised, a borrower will be offered a loan based on the amount of equity in their property, because bridge loans are secured by collateral, such as property, the lender has the right to reclaim the property if the loan is not repaid.
• Significantly, with second-charge bridge loans, the sequence of priority changes. If a loan cannot be repaid, the first charge on the property must be paid before the second.
• With a good exit strategy in place and the ability to repay the bridge loan within the term, the borrower can use the money from the second charge bridge loan for whichever purpose they intended.
• Bridge loans have far shorter payback terms than standard borrowing, typically ranging from 12 to 18 months, and the additional fees and higher interest rates must be considered ahead of time, as bridge loans are frequently more expensive monthly than repaying a mortgage.

What Can I Use a 2nd Charge Bridging Loan For?

You can use second-charge bridging loans to support a variety of development plans. They can be used to restore a home before putting it back on the market. The funds can be utilised to invest in another property or to start a business. If you wish to convert a property, you can also use second-charge finance. This will be true whether you wish to convert a business property into apartments or use an empty house to expand into a new sector.

Here’s a brief list of uses for a second charge bridging loan:

• Property acquisitions – second-charge bridge loans are usually used to acquire a new property, which is then repaid through the sale of the property on which the loan is secured. A second charge bridge loan is available for buy-to-let, HMOs, as well as residential and commercial properties.
• Property development – A second-charge bridge loan can be used to support modest or substantial property renovations, as well as a full-scale development project, using the equity provided by a bridge loan.
• Business purposes- You can use a second charge bridge loan to pay an HMRC tax obligation, expand your business premises with a property purchase, or cover a deposit on a purchase. If you own a business, a bridge loan is a terrific way to release equity and gain quick access to capital for business purposes.

Are 2nd charge Bridging Loans Regulated?

Bridging loans, whether first or second charge, can be regulated or unregulated. Regulated bridging loans are often used by homeowners who are experiencing financial difficulties. Unregulated loans are exclusively used for investment properties and are frequently used by brokers, developers, and landlords to swiftly close a payment shortfall.

Unregulated loans are not always riskier or free of laws and regulations; they have distinct standards and are used for purposes other than purchasing a residential property.

Before taking up a second-charge bridge loan, consult with a professional bridge loan broker to establish if it is the best option for you. Even though 2nd charge bridging loans are regulated, it is still advisable to get financial advice before making important property finance decisions.

How Much Can I Borrow Using a 2nd Charge Bridging Loan?

Second-charge bridge loans normally begin at £50,000 and have no absolute maximums.

The amount you can borrow with a second charge loan is ultimately determined by the amount of equity in your house, as well as the lender’s criteria, which might differ between lenders.

A lender will offer you a loan based on a proportion of the value of your property, which is known as LTV.

It’s important to remember that bridge loans can be more expensive than traditional borrowing, such as a mortgage and with a second charge bridge loan, you’ll be making monthly mortgage payments in addition to paying off a bridge loan.

At Bridging Finance, we can arrange a second-charge bridge loan with multiple specialist lenders from across the short-term market, including lenders who are not generally available in the retail sector.

Whether you are a property developer, an investor, or a novice, we can promptly provide you with a decision in principle. With our expertise and depth of knowledge, we can connect you with a suitable lender offering competitive rates.

We can assist by:

• Comparing the market on your behalf to locate the greatest offers from numerous lenders.
• Negotiating and following up on concerns with lenders. Assisting you with the full application process.
• Arranging values while coordinating with your solicitor on paperwork. Following up on your application until the funds are given to your bank account.

Start the process by submitting a free initial inquiry to us or call us on +44 011 63666339  to speak to one of our experts.