Property finance isn’t always simple.
You might have substantial equity in your property but can’t access it quickly through regular channels. Or perhaps you’ve found an excellent investment opportunity but don’t want to pay hefty early repayment charges on your current mortgage.
Second charge bridging loans offer a solution that many property owners overlook.
They let you access the equity in your property while keeping your existing mortgage in place – and they can be arranged much more quickly than conventional finance.
What is a Second Charge Bridging Loan?
When you take out a loan secured against a property that already has a mortgage, it becomes a “second charge” loan.
Your existing mortgage remains as the “first charge“, which means they have first claim on the property if anything goes wrong.
The new bridging loan sits behind this as the second charge.
Here’s what makes them different:
Say you have a property worth £400,000 with a £200,000 mortgage. Rather than refinancing the whole amount, you could take out a second charge bridging loan against some of your £200,000 equity.
A bridging loan normally lasts for 3-24 months. You will choose the term when you apply. While they carry higher interest rates than standard mortgages, they offer speed and flexibility that regular lending can’t match.
Read more: What is a second charge on a property?
Understanding How They Work
The amount you can borrow depends on your property’s current market value minus your outstanding mortgage balance.
Most lenders look at the total loan-to-value ratio (LTV) including both loans.
For example, if you own a £500,000 property with a £300,000 mortgage, lenders might consider a total LTV up to 75%.
This means you could potentially borrow up to £75,000 through a second charge bridge (75% of £500,000 = £375,000 – £300,000 mortgage = £75,000).
Your mortgage lender must agree to the second charge – this is a legal requirement.
While most lenders will consent, some have specific conditions or may refuse if they feel it puts their security at risk.
Read more: A Guide to Bridging Loans
Get access to expert brokers and specialist bridging lenders
Real-World Uses
Property investors often use these loans for quick purchases or renovations.
Take a recent client who found a fantastic buy-to-let opportunity at auction. Rather than disturb their excellent fixed-rate mortgage and pay early repayment charges, they used a second charge bridge to fund the purchase.
After refurbishing the auction property, they sold it at a profit and repaid the bridge.
Business owners find them useful too.
One client needed £100,000 for stock to fulfil a major contract. Rather than lose the opportunity waiting for a business loan, they used a second charge business bridge against their commercial property, secured the contract, and repaid the bridge from the profits.
Related reading: Why Buy-to-Let Landlords Use Bridging Finance
Eligibility and Requirements
Second charge bridging loans are more accessible than many people think.
Whether you’re an individual property owner, running a limited company, developing properties, or operating as an offshore entity, these loans could be an option.
The assessment focuses primarily on your property and exit strategy rather than traditional lending criteria.
The key consideration for lenders is the quality and value of your property, combined with how much equity you have available.
They’ll look closely at the property’s current condition and its marketability – after all, this is their security. Your planned exit strategy needs to be realistic and well-documented.
While having good credit helps, it’s not always essential. Some lenders will work with borrowers who have less-than-perfect credit histories, though this might affect your interest rate or the loan-to-value ratio they’ll offer.
Read more: How to Get a Bridging Loan
Costs and Considerations
Second charge bridging isn’t cheap finance.
Interest rates are quoted monthly with arrangement fees around 2% of the loan amount.
You’ll also need to budget for legal work, which involves both your solicitor and the lender’s legal team. Then there’s the valuation cost, potential exit fees, and any broker fees.
When it comes to paying the interest, you’ve got options.
Some borrowers choose to make monthly payments, while others prefer to have the interest rolled up and paid at the end of the term. There’s also the option to have the interest retained, which means it’s deducted from the loan amount upfront.
Your choice depends on the lender, your cash flow needs and exit strategy.
The total cost of your loan will vary based on your specific circumstances, but it’s worth comparing against alternatives like remortgaging or development finance. Sometimes paying a higher rate for a short period makes more financial sense than disturbing a good long-term mortgage rate.
Related reading: Are bridging loans expensive?
Exit Strategy – The Key to Approval
Your exit strategy needs careful consideration – it’s often the deciding factor in loan approval.
This is your plan of how you are going to pay the lender back.
Common approaches include selling the security property, selling other assets, refinancing to a term loan, using business proceeds, or completing and selling a development project.
Lenders want solid evidence that your strategy will work.
If you’re planning to sell, they’ll look at comparable local sales and market conditions. For refinancing exits, they’ll want to see mortgage agreements in principle.
Many experienced borrowers maintain a backup plan too – even well-planned exits can face delays or complications.
Read more: Successful strategies for repaying a bridging loan
Regulated vs Unregulated Loans
Understanding the regulatory status of your loan can help when looking at loan options.
The Financial Conduct Authority regulates second charge bridging loans when they’re secured against your main residence or a property where family members will live.
Business and investment property loans operate outside this regulatory framework, though they still follow industry standards.
Regulated loans offer additional consumer protections but come with stricter criteria and can’t exceed 12 months. They require more detailed affordability checks and take longer to arrange than their unregulated counterparts.
Unregulated bridging loans are more flexible.
Read more: Are bridging loans regulated by the FCA?
Alternatives
It’s hard to beat bridging loans for their speed and simplicity but it’s always worth knowing about any alternatives.
Further advances work like an additional loan from your current mortgage lender.
If you’ve had your mortgage a while many lenders will consider lending you more. Interest rates often match or sit close to your current mortgage rate, making this one of the most cost-effective borrowing options.
You’ll need a fresh property valuation, and they’ll check your current income and outgoings. Most lenders want to see how you’ll spend the money too – they’re usually happy with home improvements but might question other uses.
Secured loans (also called homeowner loans) offer another route.
These work similarly to second charge bridging loans but with longer terms, usually 5-25 years, lower interest rates and monthly repayments.
These loans suit scenarios where you:
- Have a great mortgage rate you don’t want to lose
- Face high early repayment charges on your current mortgage
- Need longer to repay than bridging loans allow
- Want regular monthly payments rather than a lump sum repayment
- Don’t quite fit standard mortgage criteria
Most secured loan lenders offer terms up to 75-80% loan-to-value including your existing mortgage. Interest rates vary based on your circumstances but typically sit between mortgage and bridging loan rates.
The choice between bridging, further advances and secured loans often comes down to:
- Speed – bridging wins for pure speed
- Cost – further advances usually work out cheapest
- Term – secured loans offer the longest repayment periods
- Flexibility – bridging loans have the most flexible criteria
Working with a Broker
While approaching lenders directly is possible, working with specialist brokers often proves more effective.
They know which lenders suit particular circumstances, understand current market rates and criteria, and know how to structure applications effectively. Many have relationships with lenders who don’t work directly with borrowers, giving you access to more options and deals.
A good broker will help you avoid common pitfalls that could delay your application.
They’ll look at your whole situation and might suggest alternatives if bridging isn’t the best solution. Their experience can prove invaluable in saving you time and money.
Next Steps
If you’re considering a second charge bridging loan, start by collecting your current mortgage statement, any recent property valuation, and details about how you will pay it back.
Think carefully about the project or purpose you’re borrowing for and make sure you understand all the costs involved.
Speaking with a specialist broker can help clarify your options and determine if this type of finance suits your needs. They’ll guide you through the process and help you find the most appropriate solution for your circumstances.
Get in touch with our team of specialist brokers who can explain your options and find the right solution for your situation.
Frequently Asked Questions
Any UK property owner with sufficient equity can apply, including individuals, limited companies, SPVs, and property developers. The main requirements are having enough equity in your property and a clear repayment strategy.
Read more: Who Can Get a Bridging Loan?
Loans typically start from £100,000, with the maximum depending on your property’s value minus your existing mortgage. Most lenders offer up to 75% total loan-to-value, including your current mortgage.
Yes, your existing mortgage lender must consent to a second charge being placed on the property. Most lenders will agree if you have a good payment history and sufficient equity.
They’re regulated by the FCA if the loan is secured against your main residence or a property where family members will live. Loans for business or investment purposes aren’t regulated.
Read more: Are bridging loans regulated by the FCA?
Generally yes, though regulated loans may have restrictions. Common uses include property purchase, renovation, business funding, and clearing tax bills.
Your mortgage terms remain unchanged, but you’ll need to maintain payments on both loans. Your lender might review your mortgage terms when seeking permission for the second charge.
Bridging lenders are not so bothered about your income situation or affordability. Most of the loans they provide do not require monthly payments and are paid back after 12 months.
In fact there are non-status bridging loans where the lender does not need any income checks or credit checks.
Read more: Can You Get a Bridging Loan Without Regular Income?
