Bridging loans have been popular over the last decade and are considered an ideal option to bridge a gap in finances. They provide short-term funding solutions and can be secured against property. They are available for both residential and commercial purposes.
There are three charges on bridging loans; 1st charge bridging loans, 2nd charge bridging loans and 3rd charge bridging loans. 1st charge loans are primary loans, whereas 2nd charge bridging loan is secondary.
Second Charge Bridging Finance
Second-charge loans are secondary loans and sit behind primary loans, either bridging finance or a mortgage. They are referred to as a second charge, meaning there are two lenders with charges against the property.
Second-charge loans are generally taken out to inject capital into the business, make renovations or refurbishments, and purchase investment properties.
A second charge bridging finance can be secured if there is enough equity left in the property to secure another loan against it.
As the second charge bridging finance is a secondary loan, therefore, consent from the first charge lender is always required.
This loan has higher rates than a primary or 1st charge loan because a second charge loan is riskier as a second charge lender can be at risk of not receiving the repayment in full.
For instance, if renovation of a property already on the mortgage is required, you may request second-charge bridging loans to complete the renovation. Once the renovation is done, this property is sold to gain profit. The funds generated through profit can be used to repay the loan, but the primary lender will take the money first, meaning the money gathered through profit will use to repay the 1st charge lender and then the second charge lender.
How Second-Charge Loans can be Beneficial
Second charge bridging loans have the following benefits:
- Additional Funding to Pay off Mortgage
Second-charge finance is a perfect lending option for those who have already taken a mortgage against their property and need additional finance for the short term or to pay off the mortgage.
- Using Existing Asset
With the second charge bridging loans, the existing asset can be used without paying your current lender.
- Low rate/ Interest only mortgage
If you are taking out the second charge bridging loans, it means existing mortgage terms and conditions will remain the same. there would not be any change in the existing mortgage; consequently, there would not be any change in the existing mortgage rate. If you are allowed for more flexible repayments, you can save thousands of pounds in interest.
- A Fixed-Rate with Early Repayment Charges
A second charge loan can be beneficial in avoiding heavy penalties on early repayments of existing fixed-rate mortgages. In this case, the second-charge loan can be a cheap option as no penalty will be charged.
- Additional Funding from Mainstream Lender is not Granted
Second-charge loans benefit those individuals having unusual income structures, e.g., having complex financial crises, or self-employed. The rules for a traditional mortgage have become stricter. The stress test is done to ensure that the borrowers can meet repayments if interest rates increase.
- Instant Funding
These loans provide quick finance to the borrowers, which is not possible if you are taking out a loan from a mainstream bank as it may take several months to arrange funds. Finance through bridging loan UK can be arranged within hours of initial enquiry. They can be helpful for those who need a rapid cash injection and can avail of time-sensitive opportunities without being missed.
There is no condition for having particular property to secure a second-charge loan; rather, it can be secured against all property types, such as commercial properties, starting a new business, buy-to-let, or residential properties.
- No Exit Fees
Generally, there are no exit fees for second-charge bridging loans, nor are there early repayment fees.
How much can be borrowed with second-charge bridging loans?
Second charge bridging loans can be arranged from £75k to £5m, and the maximum loan amount can be of 70% loan-to-value (LTV) offered for 3-24 months. The interest rates will usually be from 0.59% per month. The loan amount depends on the affordability of the loan and the equity in the property.
The Bottom Line
It is recommended to consult a bridging finance broker to secure these loans. It will help you find the deals that suit your needs.