Second and Third Charge Bridging Loans
Considering a second or third charge bridging loan? It can be done! Find out what they are, when to use them and how to make it happen in our expert guide.
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Author: Pete Mugleston - Mortgage Expert, MD
Updated: April 20, 2022
A bridging loan is short-term finance secured against an existing asset, normally property. A second or third charge bridging loan applies when the collateral already has finance secured against it, often in the form of a mortgage through other lenders.
In this article we’ll look in more detail at what this means, where a second or third charge bridging loan might be useful and what you need to know to apply.
The following topics are covered below...
What is a first, second and third charge bridging loan?
The terms first, second and third charge bridging loans refer to the finance already secured against a property being used as collateral for your loan. For a first charge bridging loan – the most common – no existing finance is already secured on the asset and the bridging loan lender would be repaid first if you were to default.
Second charge bridging loans
In the case of a second charge loan, there would be one other type of finance already secured against the asset and the bridging loan lender would be the second priority for repayment if you were to default on your debt commitments. This often occurs if a bridging loan is being secured against a property that still has a mortgage outstanding.
Third charge bridging loans
A third charge bridging loan, as you might have guessed, is taken out when you already have 1st and 2nd charge loans against your property. The third lender is the last on the list to get their capital back should the worst happen, meaning it’s a riskier proposition.
As a result, second and third charge loans often come with less favourable interest rates and terms. But, speaking to an experienced bridging loan broker first could help secure more favourable terms.
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Where might you use them?
A second charge or third charge bridging loan can be used in a wide range of circumstances where you already have existing loans on your property and need a fast, short term finance solution, such as a quick business investment or covering an unexpected cost such as inheritance tax.
Second or third charge bridging loans are often a good option for releasing equity if you have a very competitive mortgage deal in place already and remortgaging would take you away from the existing interest rates. They’re also useful if you’re locked into a fixed rate term and remortgaging would incur hefty early repayment charges.
Second charge bridging loans are often used in these circumstances to undertake renovations or refurbishments on a home or to clear outstanding debts before a property sale.
Bridging loans are short-term and don’t always require monthly repayments, as a result income isn’t a factor in the same way as when you’re looking to secure a mortgage. More pressing eligibility criteria are:
- What you’re using to secure the loan
- How much deposit you’re able to put down
- Your exit strategy
Second and third charge bridging loans are riskier for lenders than first charge loans and so they may be tougher on certain requirements. But, the more deposit you’re able to offer, the better interest rates you should be able to secure.
Bad credit doesn’t have to be a deal breaker, but your credit score can have more of an impact on these loan applications as lenders will be extra cautious about how it could impact your exit strategy, especially if it relies on your ability to remortgage.
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How a broker can help
Second and third charge bridging loans are not always straightforward but as applications are usually assessed on a case by case basis they are by no means impossible. Working with a bridging loan advisor who specialises in complex circumstances is key, as they’ll have the experience and contacts you need to get your finance agreed quickly.
Bridging loans aren’t generally the cheapest finance option you could choose, having an expert to negotiate on your behalf and find you the best deal could end up saving you thousands of pounds in interest.
The brokers we work with have knowledge of the whole of the market, saving you a lot of research time. If you get in touch we will arrange for a bridging loan specialist to contact you straight away.
The importance of an exit strategy
Your chances of securing a second or third charge bridging loan are directly linked to the strength of your exit strategy because this is how the lender is going to get their money back.
A robust exit plan can be even more important here than with first charge bridging finance as the risk for the lender is so much higher. For example this could mean having an offer agreed on a remortgage already, or having an inheritance about to be finalised.
Your exit strategy can vary depending on what you’re using the bridging finance for. If you’re using the loan for property refurbishments to get it ready to be sold then your exit strategy is selling the property, for example.
As your mortgage will need to be repaid first from the proceeds, the lender will want to be absolutely certain that the renovations will add enough value to the property to ensure there is capital leftover to repay the new loan plus interest and costs.
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Get matched with a bridging loan broker
Many of the bridging loan advisors we work with specialise in securing second or third charge bridging finance and will be able to guide you through the whole process, from finding you the right lender through to helping build a solid exit strategy to get you the best possible deal at the cheapest price.
Our free broker-matching service can quickly assess your individual circumstances and pair you with an advisor who best meets your needs. Give us a call on 0808 189 2301 or make an enquiry and we’ll arrange a free, no-obligation consultation with a specialist advisor today.
Yes, if you want your new finance to be registered as a second or third charge then any existing lenders will need to give consent. This is because new lenders have to note their charge on the Land Registry. Their charge is then a restriction on the title, and so any additional borrowing can only legally be done with the existing lenders’ consent.
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About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!