A second charge is a legal claim over a property that sits behind an existing first charge. The second charge lender is repaid from the proceeds of a property sale only after the first charge lender has been repaid in full.
How It Works
If a property is sold following a default, the proceeds are distributed in order of charge priority:
1. First charge lender (repaid first in full)
2. Second charge lender (repaid from any remaining proceeds)
3. Unsecured creditors (repaid last, if anything remains)
Because the second charge holder is repaid after the first charge lender, the risk is higher â in a falling market or a forced sale, there may not be enough proceeds to fully repay the second charge. This higher risk is reflected in higher rates.
Common Uses
- Raising capital against a property that already has a mortgage, without refinancing the existing first charge mortgage (useful when the existing mortgage has a favourable rate or an early repayment penalty)
- Bridging loans where the borrower needs additional funds above what the first charge lender will provide
- Development finance stacked behind a senior first charge facility
Consent Requirements
Before a second charge can be registered, the first charge lender must typically consent. Check with the existing lender early in the process â if they refuse consent, the second charge cannot proceed.
Related Terms
- First charge: the primary security interest, repaid before the second charge
- Combined LTV: the total of all charges as a percentage of property value
- Consent to charge: approval from the first charge lender for a second charge to be registered