What are Second Charge Bridging Loans?
A Second charge bridging loan is short term finance which is secured against a property that already has a mortgage on it. In these cases, the mortgage is classed as the first charge on the property and the additional loan then becomes the second charge on the property.
One instance where you could use a second charge bridging loan would be if you already have a mortgage on your home, then you secure another loan against it to buy another property. This would then make the bridging loan the second charge.
The main difference between a first and second charge bridging loan is the order of repayment. This basically tells you which lenders are to be repaid first with the first charge loan taking priority.
Second Charge bridging loans work the same way as other kinds of bridge loans which is to provide the borrower with the finance they need in the short term. This could be until the property the loan is secured against is sold, or a refurbishment has been finished and it is now mortgageable.
It is important to note that you would only be able to put a second charge on a property if there was enough equity left in it for borrowing purposes. If you are looking to take out a second charge bridging loan contact the professional team here at Pyxis. As an experienced broker we are able to guide you through the process and use our knowledge to get the bridging loan that best meets your specific requirements.
Bridging Loan Calculator
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How do second charge bridge loans work?
Just like a second charge mortgage you can apply for a second charge bridge loan providing there is enough equity left in the property. This loan is separate from the original mortgage as both need to be repaid individually.
Generally, a bridging loan will be repaid with the sale of a property or the realisation of other assets. With a second charge bridging loan you must continue to pay your mortgage while also making separate monthly repayments for your bridging loan.
The team here at Pyxis have many years’ experience of providing our customers with the bridging loan solution that offers them the best terms. If you are in need of a second charge bridging loan, get in touch with our team today for considered and professional advice.
6 Steps Towards Second Charge Bridging Loans
- Because of their nature, second charge bridging loans require the services of a specialist lender. We’d recommend speaking to the team here at Pyxis as your first step.
- Once we have helped you find the lender that meets your specific needs, the lender will need to do a valuation to determine the value of the property. They will also look at how you intend to pay the loan within the terms of the agreement. This is known as the exit strategy.
- Once the lender is satisfied that you have enough equity in your property, and you have a viable exit strategy a loan offer will be made. Because you use collateral to secure a bridging loan for example the property failure to repay the loan could result in it being repossessed.
- A significant fact about second charge bridge loans is that it shifts the order of priority. If the borrower cannot repay the loan the first charge against the property has to be paid back before the second charge.
- Once you have demonstrated you have a solid exit strategy and you are able to repay it within the agreed timeframe the bridge loan can be used for any purpose.
- The repayment period for bridging loans are much shorter than those for more traditional types of finance. Repayment terms for bridge loans are usually between 1 and 18 months. Remember to factor in the higher interest rates and any fees associated with bridging loans. This is especially important where second bridging loans are concerned as you will be repaying two different loans.
What are Second Charge Bridging Loans Used For?
Bridging loans are an extremely versatile form of finance which give borrowers access to funds much quicker than traditional forms of borrowing. This is extremely useful if you are in a situation that is time sensitive like buying at auction or if a property chain collapses.
Here are Some of the Uses for a Second Charge bridging Loan:
The main use for a second charge bridging loan is to buy a new property. The loan is usually repaid with the sale of the property. Second charge bridge loans are routinely used when purchasing buy-to -lets, HMO’s or other residential or commercial properties.
Second charge bridging loans are often used on redevelopment or refurbishment projects. This gives you the funds to undertake the project and the loan is repaid with the sale of the property or by taking out a traditional mortgage on it.
A second charge bridging loan can be utilised for business expansion or to repay an unexpected tax bill. For business owners a bridge loan can give you quick access to cash when you most need it.
Are Second Charge Bridging Loans Regulated?
Regulations in the UK distinguish between second charge bridging loans intended for residential properties where you or a family member plan to reside and those for property investment or acquiring a property for commercial purposes. The FCA (Financial Conduct Authority) oversees and regulates the former to ensure borrower protection, while the latter falls into the category of unregulated loans.
The FCA plays a crucial role in safeguarding borrowers by supervising lending standards, verifying adherence to those standards, and ensuring thorough affordability assessments. This ensures that loans are appropriate for the specific individual or business involved.
It’s important to note that unregulated loans, although lacking FCA oversight, aren’t inherently riskier or devoid of rules and regulations. They simply operate under different sets of rules, particularly designed for purposes other than residential property acquisition.
Before opting for a second charge bridge loan, seeking guidance from a knowledgeable bridge loan broker such as the team here at Pyxis is advisable. The expertise we possess can help determine whether this financial option aligns with your specific needs and circumstances.
How Much Can I Borrow with a Second Charge Bridging Loan?
Second charge bridge loans typically commence at £50,000, and there is no fixed upper limit. The loan amount available is usually based on a percentage of your property’s value, known as LTV (loan to value).
An LTV (Loan-to-Value) of 75% is generally available from lenders, with potential for a higher percentage when factoring in additional assets.
Nevertheless, the specific amount you can secure with a second charge loan hinges on the equity present in your property and the criteria set by the lender. This criteria is likely to vary from lender to lender.
It’s crucial to bear in mind that bridge loans come with costs, including additional fees and higher interest rates compared to conventional borrowing such as a mortgage (although the repayment period is shorter). With a second charge bridge loan, you’ll be managing both your monthly mortgage payments and the repayment of the bridge loan.
The amount you can borrow may also be influenced by your credit history and ability to repay. To obtain an estimate of the loan cost you require, you can utilise our bridge loan calculator for an indicative quote.
Our range of bridging loan solutions includes…
Do You Need a Second Charge Bridging Loan?
If you need a second charge bridging loan for a property purchase or redevelopment project the team here at Pyxis can help. As brokers we have access to a vast panel of lenders who ensure our clients will be able to get the bridging loan that best meets their needs at favourable rates. To discuss your particular circumstances and find out how we can help you secure the second charge bridging loan you need call our helpful team today.
