Second Charge Bridging Loan
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Second Charge Bridging Loan
We understand that sometimes you need fast access to funds without disrupting your existing mortgage arrangements. We are keen to help you navigate your options, so we’ve put together this Q&A to discuss the ins and outs of a second charge bridging loan. In this guide, you will learn what a second charge bridging loan is, how it differs from a first charge, what you can use the funds for, and the advantages and disadvantages of this type of short-term finance.What is a second-charge bridging loan, and how does it work?
A second-charge bridging loan is a loan secured against your property that ranks second to the existing primary loan. It is held by a secondary lender who has second priority if there is a failure to pay and a repossession occurs. The first charge lender receives their money back first, and the second charge lender must take from what remains.What is the difference between a first and a second charge?
A first charge is typically held by your main mortgage company or another bridging lender. A second charge is held by a secondary lender who has second priority in the event of failure to pay and repossession. This means the first charge lender gets their money back before the secondary lender.What can second charge bridging loans be used for? When would you use a second charge bridging loan?
You would typically use a second charge bridging loan when you do not want to interfere with the existing first charge loan. This might be because the early repayment charges are too large or because you wish to remain with a high street lender. The funds can be used for:- Auction purchases
- Chain break when purchasing another property
- Business investment or to assist with cash flow
- Property reservation
- Paying tax bills or school fees
Who is a second charge bridging loan for?
It is essentially for anyone who has suitable equity in their property. Since it is a secured loan, you must have that equity available for the lender to be able to take a charge.Speak to an Expert
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Do you need consent for a second charge?
Whether you need consent depends on the criteria of both the first and second charge lenders. Some first charge lenders will explicitly state that no one can sit behind them, while some second charge lenders will insist on having consent from the first charge. There are also equitable charges where the lender does not require formal permission.Why is consent required?
Consent is required because every lender has a risk appetite. Interest rates are based on the risk of the loan, and some lenders may not want a second lender to come in and create more risk or more debt that they would not feel comfortable with.How much can you borrow with a second charge?
Loans typically start at about £25,000 or more, and while there is no strict limit, this will vary with different lenders. Lenders look at the equity available in the property and often limit lending to 65%, 70%, or potentially 75% of the property value. Ultimately, the amount you can borrow is set by each lender’s specific risk appetite.What are the disadvantages and advantages of a second charge bridging loan?
Disadvantages Similar to a first charge bridging loan, a key disadvantage is that the debt increases over time as interest is added. You must know from the outset how you are going to pay the loan back, especially in a worst-case scenario. We try to ensure clients have at least two ways to pay the loan back. Advantages It provides access to short-term finance, typically from one month up to 24 months. The key advantage is the ability to maintain your existing lender. For instance, if you have adverse credit and need to raise money in the short-term, you would not want to lose your large first charge loan just to raise that money.How do I apply for a second charge bridging loan?
We always recommend applying through a broker like ourselves. Since every loan is different in terms of criteria, loan to value, and the use of funds, a broker has access to a wide range of lenders and can find a solution that suits your specific needs.Is there anything else to add?
When considering a loan like this, it is important to discuss the bigger picture and the whole scenario. Some people may approach us thinking they know exactly what they need, but we may be able to find another solution. We recommend providing all the information at the start so we can find the right answer for you.Summary
A second charge bridging loan is a valuable option for homeowners or property investors who need short-term finance but want to maintain their current first charge lender. It allows you to raise capital for various purposes, such as business investment, property purchases, or settling tax bills, provided you have sufficient equity in the property. While the debt increases over time, the key benefit is accessing funds quickly without incurring large early repayment charges from your existing mortgage.Key Points
- A second charge ranks second in priority to the first charge lender in the event of repossession.
- Use it when you want to avoid high early repayment charges from your existing first charge loan.
- It is a secured loan for anyone with suitable property equity.
- Consent may be required from the first charge lender, depending on the risk appetite of all parties.
- Lending amounts typically start at £25,000 and are often limited to 65% to 75% of the property value.
- Always apply through a broker to find the solution that suits your needs.