Head of Content
Head of Bridging and Commercial
Bridging finance can help you out if you need to raise funds quickly, but is it available on a second charge basis? Read on to find out all you need to know.
Are second charge bridging loans available?
Yes. A bridging loan can be secured against a property you own and hold equity in as a second charge debt which would sit behind the primary debt, usually a mortgage.
There are two types of second charge bridging finance available:
- Unregulated: When there are no residential properties involved in the transaction. I.e. the bridging loan is secured against a commercial property or asset as a secondary debt to long-term finance, such as a commercial mortgage.
- Regulated: For transactions involving residential property. Either the loan is secured against your home, secondary to the mortgage, or the funds are being used to buy a property that either you or a family member will live in after competition.
Second charge bridging is swift to arrange and the criteria for it is flexible, but the interest rates can be high and there is a risk that the security asset could be repossessed.
Connect with a second charge bridging expert today
How does this type of finance work?
Second charge bridging loans work in the same way as first charge bridging, except the debt sits behind another type of finance. This means the bridging lender would be second in line for reimbursement if the security asset is repossessed and sold due to non-payment.
Like all bridging finance, a second charge loan would be offered on a short-term, interest-only basis and you would need to evidence an exit strategy to be approved.
If the loan is for a property investment or purchase, the exit strategy would most commonly be to sell the property or remortgage onto a standard residential or commercial agreement.
Criteria for second charge bridging
The eligibility criteria for second charge bridging finance is as follows:
- Lender consent: Your first charge lender will need to approve a second charge being placed on the property. If you were unable to repay the loan and the property had to be repossessed, this would have implications for the first charge lender.
- Exit strategy: This is the most important aspect of the eligibility criteria for second charge bridging. The lender will need to be convinced that your exit strategy (usually a remortgage or sale of the asset) will pay out at the end of the loan term.
- Deposit requirements: Second charge bridging can have higher deposit requirements than first charge, with some lenders requesting 40% of the loan amount. Other lenders, however, may ask for 20-25% as the minimum.
- Credit history: Credit history requirements can be flexible for bridging finance, especially unregulated deals, but you may have trouble getting approved for a second charge loan if you have bad credit that puts the exit strategy at risk.
Criteria can be more stringent for regulated second charge bridging due to lenders having to abide by the guidelines set out by the Financial Conduct Authority (FCA).
How to get a second charge bridging loan
Follow the steps below to get started on your bridging finance journey:
Speak to a broker: Second charge bridging can be high risk and complex, so professional advice is highly recommended before you begin. There are brokers on our team who specialise in this area, and their expertise can make a difference.
Seek your lender’s consent: Your broker can advise you on how to request consent from your current lender and assess the likelihood of approval. This will be necessary before you apply to place another charge on the property as it affects them too.
Ready your exit strategy: You will need evidence of an exit strategy so be sure to have proof that you have a method of repaying the debt at the end of the term.
Your bridging finance broker can guide you through each of these steps and will then oversee your full application. Fill out our quick form if you’re ready to begin.
How much can you borrow?
Most bridging loan providers who offer second charge finance will let you borrow between 40% and 80% of the value of the property or asset the debt is secured against. It is, however, possible to borrow more if you can put up other assets as security.
The other thing to bear in mind here is that certain bridging lenders have maximum loan amounts in terms of monetary value. With some, it can be around 2-3 million, but others set no limit at all and will consider very large loans on a case-by-case basis.
Available lenders and rates
Lenders who consider second charge bridging finance applications include:
Most lenders in this corner of the market are specialists and unregulated. Our bridging finance brokers have deep working relationships with many of them and often have access to exclusive rates and deals, even if it’s regulated second charge bridging you need.
The rates available for second charge bridging are often less favourable than for first charge. You can boost your chances of securing the lowest one possible by putting down extra deposit/security, and making sure that your exit strategy is watertight.
Why choose Teito for your bridging finance needs?
Second charge bridging is available but can be tough to secure and risky. That’s why it’s a good idea to apply through a specialist bridging finance broker - they have the knowledge, experience and lender contacts you need to boost your chances of success.
Here are just some of the reasons why people choose us for their bridging needs:
- Our brokers are experts on second charge bridging
- They can access exclusive rates and deals
- We are 5-star rated on leading review sites
- Your first consultation is absolutely free
Ready to take advantage of a free, no-obligation chat with a bridging finance broker who specialises in second charge lending? Get started here.
FAQs
Yes provided you hold enough equity in the security asset, there are a few lenders available for third charge bridging loans. This works similarly to second charge bridging, except the lender would be third in line to recoup their losses in the event of a repossession.
Rates and deposit requirements for third charge bridging are generally higher than first and second charge, and the criteria can be more stringent.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.