Bridging finance is at times difficult to grasp for many. Often the jargon and wording used is confusing and doesn’t fill the borrower with the confidence they are looking for. One term which commonly comes up in conversation is “second charge.” Despite seeming to be complicated, it is very common in bridging loans – and is quite simplistic once you understand the purpose they hold.
The simple explanation of second charge
When your property is placed as security for a financing arrangement, your lender will register a ‘charge’ against it.
- First charge is often your main mortgage deal.
- Subsequent second charge is applied on top or behind of that mortgage, giving the new lender secondary priority should your property need selling or end up repossessed.
Second charge when applied in bridging means that a further charge has been secured on a property that already holds an existing mortgage or loan to it. As the first lender holds the priority, the second charge lender will need to be comfortable with the equity position and the borrower’s exit strategy for the property in question.
Why bridging on a second charge?
Loans are most often placed with second charge if the borrower needs access to money quickly yet doesn’t want to cause any issue with a current mortgage. This can be scenarios like:
- Releasing equity from a property to raise funds quickly, either for investment or to solve short-term balance issues.
- Financing refurbishment or development works, so that improvements can be finalised before refinancing or selling.
- Securing funds for commercial property opportunities, such as buying new, completion of expansions or meeting time-sensitive business objectives.
A second charge route avoids disturbing low mortgage rates, early-repayment charges or lengthy refinancing processes.
How second charge and standard bridging differ
A first charge bridge gives the lender upmost security, so the risk is not as high. With a second charge, the lender takes on elevated risk because they’re behind another borrowing agreement. As a result, the underwriting can get more strenuous, as the lender will scrutinise equity, property condition and the borrower’s ability to make the payment back at the end.
However, when used in a sensible manner, a second charge can unlock money that would otherwise be difficult to release, often in just a few days rather than waiting months.
How Goldhill approach your loan
Not all lenders will entertain second charge bridging loans as it requires in-depth understanding and being able to provide sharp, proactive decision-making. We do, and importantly, as we are functioning as a direct lender you are dealing direct with the people who make the decision..
We have resources to use from our own private funds, so that we can push things along quickly, devise terms that fit your need and take a more pragmatic approach to underwriting that traditional lenders would not consider. For borrowers requiring a level of certainty and speed, our direct-funded model has fewer hoops to jump through and decisions can be made in swift time.
Who benefits the most?
A second charge bridge is advantageous to people such as:
- Property investors who seek capital but don’t want to refinance
- Homeowners needing to get out of a locked chain situation
- Developers needing to initiate works before selling the finished project on
- Business owners who want to leverage property without touching their main mortgage
A second charge is not a cheap financing option, so be sure to only use it when you have a clear, timed exit, usually being a sale or refinance to a product with more long-term protection.