Experts in Second Charge Bridging Loans
Bridging Options, led by Senior Consultant Mark Piper, specialises in second charge bridging loans. With extensive expertise in the property finance sector, the team helps clients secure funding using properties already under a primary loan. Bridging Options connects clients with trusted brokers and lenders to find the best deals, providing expert advice throughout the process.
What Are 2nd Charge Bridging Loans?
A second charge bridging loan, also known as a second charge mortgage, can be used as a solution for when you already have finance in place secured against a property, but additional funds are still needed.
Why is this necessary you may ask?
Because in property investment, there are always new opportunities and circumstances presenting themselves. For example, a second charge can be used to take advantage of these as well as to raise funds for refurbishment works on a property, to cover a shortfall of funds, or a new business venture.
Additionally, second charge loans can be used for a range of property types like residential, buy-to-let, commercial, or semi-commercial properties.
Furthermore, second charge loans are available for overseas clients and limited or offshore companies who are looking to purchase property within England and Wales.
At Bridging Options, we strive to offer these convenient services to our clients. Read on to find out more about this invaluable opportunity.
What’s the difference between a first, second and third charge bridging loan?
A first charge bridging loan is secured against a property with no other existing loans, making the lender the primary claimant. A second charge bridging loan is secured on a property that already has a loan, giving the lender secondary priority. A third charge loan follows similar rules, but the lender ranks third in repayment priority.
How do Second Charge Bridging Loans work?
When you first lend against a property, with either traditional long-term finance such as a mortgage or alternative finance such as a bridging loan, this is known as a first charge.
When or if you require additional funding, a second charge is provided, meaning there are two lenders with charges on the property.
This increases the loan to value percentage. Which mean you may therefore find the interest rate to be slightly higher for a second charge than the first charge.
But what circumstances may bring this need about?
When to use second charge loans
Second charge mortgage
Subject to the permission of your current lender, you are allowed to have a second mortgage secured on your home. These are popularly known as a secured loan, but most primarily as a second charge mortgage.
The reasons you may take out a second charge loan are typically because customers approach their existing lender for borrowing money. Examples of this may include debt consolidation, or some home improvements.
Sometimes, customers may be declined for any further advance, but that is not necessarily the end of the road just because the first mortgage lender says no.
If it’s a small amount of money, you would likely look at unsecured personal loans as an option. But if a larger amount is needed, typically in excess of 20,000 pounds or more, then a second charge mortgage may be the more sensible option.
Additional reasons that you may do a second charge mortgage could be due to a credit rating, which may have changed in between taking out the first mortgage, and then coming to apply for a second charge mortgage.
For example, if you got a first mortgage with a High Street lender, and then unfortunately you perhaps lost your job, and you end up with a default or a County Court Judgement on your credit rating profile, that could be a strong primary reason why you may be declined.
Whatever the reason, it would be a shame to move your entire mortgage into a specialist lender and be faced with a much higher rate of interest and early repayment fees.
Which is why this is one of the primary reasons that a second charge mortgage has come into its own, because you are able then to retain the really attractive rate you have with the High Street lender and then borrow the extra money you need through second mortgage.
Some other options may include when you’re looking to raise funds to refurbish your property before you sell, as well as a business transaction that may have come up which would generate a profit and funds are required to move quickly.
Furthermore, another reason could be that urgent funding is needed for an unrelated issue such as paying probate or associated inheritance tax costs.
Property purchase
A second charge mortgage can also be used to fund a property purchase, especially when you need to bridge a gap between buying a new home and selling an existing one. It provides flexibility when a quick purchase is required, or when the borrower doesn’t want to remortgage the current property.
Business financing
A second charge bridging loan can be useful for business owners needing immediate funds to seize new opportunities, such as expanding operations, buying equipment, or funding a time-sensitive business transaction. It allows you to secure financing against your property without disrupting your existing mortgage terms.
Debt consolidation
Second charge mortgages are often used for debt consolidation, enabling borrowers to pay off multiple high-interest debts by rolling them into one manageable loan. This can result in lower monthly payments and less stress while still keeping the original mortgage in place.
Renovation
If you’re looking to make significant improvements to your property, such as an extension or complete refurbishment, a second charge mortgage can provide the necessary funds. This is especially useful when large-scale renovations are involved, where the funds required exceed typical personal loan amounts.
Who can apply for a second charge bridging loan?
A second charge bridging loan can be applied for by individuals or businesses who already have an existing mortgage or loan on a property but need additional short-term financing. Typical applicants include property investors, developers, landlords, and homeowners looking for quick access to funds for renovation, development, or property purchase. The property serves as collateral for the loan.
Second charge loan criteria
Second charge mortgage criteria follows many protocols as established by HMRC.
The maximum second mortgage you can get depends on the amount of equity you’ve built up in your home .
A second mortgage allows you to use any equity you have in your property as security against another loan.
As previously mentioned, it means you’ll have two mortgages on your property.
Equity is the percentage of your property owned outright by you, which is the value of the home minus any mortgage(s) owed on it.
The amount a lender will allow you to borrow will vary. However, up to 75% of the equity in your property will give you an idea. Lenders have to comply with rules that cover affordable lending.
This means lenders have to carry out the same affordability checks and ‘stress test’ their ability to meet future mortgage monthly repayments as they would for an applicant for a main or first charge residential mortgage.
Second charge loan interest rates
The fees and interest rates when you take out a second charge mortgage tend to be much higher than a normal first charge mortgage deal.
The reason for this is fairly simple. It’s all about the risk of repossession.
So if you fall into arrears, and unfortunately the property ended up being repossessed, the first secured loan lender would have first call on that property once it’s sold to get their money back. The second mortgage lender can only come along and collect when the first charge mortgage fees have been met.
This is why it is higher risk for the second mortgage provider.
For example, if you borrowed £18,000 over a period of 120 months, you would likely face an interest rate of 5.5% fixed with a 60 month loan term in addition to broker and lender fees.
Is there a limit on how much you can borrow?
Yes, the amount you can borrow with a second charge bridging loan typically depends on factors such as the value of the property used as collateral, the loan-to-value (LTV) ratio, and the lender’s specific criteria. While some lenders may have maximum limits, bridging loans can range from thousands to millions of pounds, depending on the borrower’s financial situation and the property’s value.
How much do second charge bridging loans cost?
Second charge bridging loans typically cost more than traditional loans due to their higher risk for lenders. Costs include interest rates, which can range from 0.5% to 1.5% per month, and fees such as arrangement, valuation, and legal fees. The overall cost will depend on the loan size, term, and lender-specific terms.
The benefits of a second charge bridging loan
Taking out a second charge loan secured by a reputable lender can be a great way to raise money fast for more money to satisfy personal circumstances with your home.
Although the interest is higher than what you can expect to see with first charge mortgages, these secured loans have very flexible lending criteria and are not as concerned with something like a bad credit rating, financial difficulties, or even how much equity was reconciled by the primary mortgage.
Taking out a second mortgage in tandem with the current mortgage can also mean that the need to repay your existing mortgage company is not as immediate, which can help you save on early repayment charges just by taking out the second mortgage.
These loans may be available where your existing mortgage provider 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.
Quick access to funds
Quick access to funds is one of the key benefits of bridging loans. These loans are designed to provide fast, short-term financing, often within days, making them ideal for time-sensitive transactions like property purchases, renovations, or development projects. Bridging loans offer flexibility and immediate access to capital, helping borrowers meet urgent financial needs.
Flexibility
Flexibility is a major advantage of bridging loans. They can be tailored to suit a variety of financial situations, whether for residential, commercial, or investment purposes. Borrowers can choose short or long-term repayment options, and bridging loans can be structured around individual needs, such as securing funds quickly or accommodating complex financial circumstances.
Speak to our second charge bridging finance experts
Speak to our second charge bridging finance experts at Bridging Options, led by Senior Consultant Mark Piper. With a wealth of experience in property finance, Mark is dedicated to connecting clients with the best brokers and lenders. Having built a career with top names like Abbey Life, Prudential, and Aviva, Mark transitioned to co-founding a mortgage brokerage, which grew to become one of the largest distributors in the UK.
Mark’s extensive background in insurance and property finance, combined with his personal experience as an active property investor, makes him a trusted advisor in the bridging finance space. His commitment to ensuring clients receive expert, tailored advice has earned him recognition in the industry. At Bridging Options, Mark and his team are ready to help you secure the right second charge bridging loan for your needs.
To get started, simply complete the contact form on our website, and Mark will personally reach out to guide you through the process. Whether you’re looking to fund a new property purchase, development, or renovation, we’re here to support you every step of the way.
Are there risks involved when taking out a second charge bridging loan?
Yes, there are risks involved in taking out a second charge bridging loan. If you fail to repay the loan, the lender can repossess your property, even though it already has a primary mortgage. Additionally, higher interest rates and short repayment periods can lead to financial strain if an exit strategy isn’t clearly planned or if property values fluctuate.
Is a bridging loan a second charge?
Yes, a second legal charge can be arranged for a second mortgage as a term of homeowner loans. A second mortgage will indeed always require assent from the first lender since a second mortgage raises the stakes of risk if a repossession were ever to occur. There are also no immediate changes to how much you owe beyond the first mortgage. Second mortgages allow for lenient repayment terms due to this arrangement.
Does your existing mortgage affect how much bridging finance you can access?
Yes, your existing mortgage can affect how much bridging finance you can access. If you already have a mortgage on your property, the amount you can borrow with a bridging loan is typically reduced, as the loan-to-value (LTV) ratio will take into account both the existing mortgage and the new bridging loan. Lenders will assess your overall equity and the property’s value to determine how much additional financing you can secure.
