Second Charge Bridging Loans
Second Charge Bridging Finance
More people who need extra funds have begun seeking out second charge property bridging finance these days. Some people use it to buy an investment property. Others use it to make property refurbishments or to inject some capital into their business.
Second charge bridging loans allow borrowers to release equity in their property. This is often a better option than refinancing. For people with an existing mortgage on their property who require more short-term funds, second charge bridging loans are ideal.
What Is A Charge?
When you purchase a property, the lender puts a charge over the property. They then use the asset as security if you default on the loan. This is a first charge. If you default, you may or may not receive equity. You only receive equity if the lender disposes of the property for more than their cost and outstanding balance.
If a first lender agrees to the property having another charge, that other charge is the second charge. Some lenders will cross-collateralise over multiple assets. This means they will charge over multiple properties if the loan to values don’t stack up.
Why Take Out Second Charge Property Bridging Finance?
Second charge property bridging finance allows you to rapidly raise funds in cases where mainstream lending is impossible or inconvenient. Rising costs are also making their criteria very strict.
Second charge bridging loans are ideal for people that have a low loan to value mortgage with little to no income and cant qualify for a further advance from their current lender. They allow borrowers to keep their existing mortgage rates without any changes to their terms and conditions. Second charges often allow for a more flexible repayment term too.
Borrowers who are locked in fixed rate deals with an early repayment charge can also benefit from second charge finance. Second charge loans are often cheaper since the current mortgage remains in place with no penalty charged.
Borrowers who cannot secure any more funds from their mainstream lender also benefit from second charge finance. Mortgage rules are getting stricter and this makes it hard for existing borrowers to take out more finance products.
Providers of second charge bridging loans don’t use the same strict tests. They can also tailor solutions to meet your specific borrowing requirements. As a result, second charge finance is also very helpful for anyone with an unusual income structure.
Mainstream banks take a long time to arrange loans for borrowers. Meanwhile, bridging finance companies can make rapid lending decisions and can release funds speedily. It’s even possible to receive funds in as little as three days. That makes second charge bridging loans an extremely useful option when borrowers need money quickly.
There are many people who can benefit from second charge property bridging finance. Some of the most common applicants include:
- Property developers
- Landlords with one or more properties
- Property owners with positive equity
2nd Charge Bridging Finance
What Is Second Charge Property Bridging Finance?
Second charge property bridging loans are short-term loan products. They help borrowers to swiftly progress their property plans. People who request second charge bridging finance already have a mortgage on their property.
This type of finance allows them to use that asset without having to change their terms or remortgage. The unlocked equity allows borrowers to move forwards with their investment or refurbishment plans.
Second Charge Bridging Lenders
What Are The Differences Between First And Second Charges?
When a borrower takes out a loan secured against their unmortgaged property, that is a first charge. That lender is the “first charge” and will receive payment first if the owner sells the property. The first lender takes precedence over any other charge on that property.
A second lender using the property as a form of security for a loan has the “second charge”. When the owner sells the property, the second lender receives their money after the original first charge lender.
As a result, second charge lenders may face a higher risk of receiving no payment or only partial payment. Therefore, typically, second charges have a higher rate of interest but as the loan is smaller may be cost effective than refinancing the entire loan.
Does A First Charge Lender Need To Give Permission For A Second Charge?
First charge lenders must give permission before you make an application for second charge finance. Your solicitor can consult with the first charge lender in order to obtain the necessary permission.
What Can I Use Second Charge Property Bridging Finance For?
It’s possible to use second charge property bridging finance for several purposes. These include:
- Refurbishing a property before renting it out or selling it for a profit.
- Buying another property.
- Financing business ventures.
- To complete a property conversion.
Second charge property bridging finance is suitable for investing in semi-commercial, commercial, or residential properties.
A second charge bridging loan is suitable for borrowers requiring capital and with equity in a property but no income. Borrowers must have an exit to pay the loan back though. It is important to note that the maximum term of a second charge bridging loan is 12-18 months.
You can use a second charge bridging loan over multiple properties. This is known as cross-collateralisation.
How Does A Lender Assess A Second Charge Bridging Finance Application?
The primary factors that lenders bear in mind when assessing applications are security and loan to value (or LTV). If you have strong security and a low LTV, your application process will be fairly simple. The risk is lower in such cases for lenders.
A surveyor must assess your property and produce a valuation report. The lender will use this report to assess your application.
Depending on your planned exit, lenders may want sight of the following too:
- Proof of your income
- Details of all proposed works if you’re planning a refurbishment project
- An agreement in principle for the proposed refinance
Which Costs Are Involved In Obtaining A Second Charge Bridging Loan?
You will pay interest on your bridging loan as well as some or all of the below:
- A lender arrangement fee. This is typically between 1 and 2% of your total loan amount. You may be able to add it onto your loan.
- A lender exit fee. If an exit fee applies, you need to pay it when you repay your loan.
- A valuation fee. You pay this fee at an early stage of your application process. You cannot add this fee onto your loan.
- Legal fees. Usually, you need to pay your own legal costs and your lender’s legal costs.
- Lender lead fee. In some cases, brokers charge fees for providing their service. If a broker charges a fee, it will typically be around 1-1.5% of your loan amount. Sometimes, brokers charge a set fee.
You mustn’t forget to include these extra costs in your calculation.