If you need finance but your property already has a mortgage on it, you will need to look for a second charge bridging loan.
Second charge loans are those which are secured via an asset which already has a ‘first charge’ on it.
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What is a First Charge Bridging Loan?
A first charge loan is when the property being offered as collateral has no other encumbrance.
Another way of saying this is that the property is fully owned outright by the borrower. This means that the financial institution can have the right to sell the property before anyone else, should there be a default.
Second Charge Bridging Finance
Second charge bridging is commonly used as a means of raising capital when early repayment charges or higher interest rates preclude the option of repaying the original mortgage. Second charge bridging offers a means to raise cash quickly, using existing collateral.
Second Charge Loans are Secured
Since all lenders need to protect against risk, they ask for assets, usually property, to stand as security for money borrowed.
In the case of a property with an existing mortgage, the mortgage company will have the first charge, or right to use that asset to cover their loan, should the borrower default.
Any equity which has accrued in that property may be enough to stand as collateral for a 'second charge' bridging loan.
How Much Bridging Finance Could I get as a Second Charge?
First you need to understand how much equity you have in your existing property - this means how much is owned outright by you or your company.
For example, if your office is worth £750,000 and you have £450,000 left to pay on your mortgage, you will have £300,000 of equity.
That means your bridging loan will be calculated using that as the starting point. Second Charge Loans usually range up to 70% LTV, so with a £300,000 equity you could borrow up to £210,000.
All of this is lender specific and based on a variety of factors pointing to the level of risk the lender feels they will be comfortable with.
How Much Will it Cost?
Arrangement fees are usually approximately 2% of the total loan amount, and interest will be from 0.85% per month.
Second Charge Bridging Lenders
Here at Business Expert we offer a convenient and simple service to find the best possible bridging loan deals. With access to the whole of the lending market at our fingertips, we can quickly match you with the right financial provider to get you the finance you need.
Since not all bridging lenders will offer a loan via a second charge, why not use our industry acumen and knowledge of the lenders to get you a range of quotes?
Can I Get a Third Charge Loan?
There's a significant risk for lenders getting only a third charge, but it is possible in certain circumstances. Those lenders that consider this do so under strict criteria and after a lot of their own due diligence.
Usually one of the criteria for a third charge bridging loan is that borrower have a proven track record of successful development. In addition, the exit strategy must be solid as a rock.
How Quickly Could I get a Bridging Loan?
Bridging loans are specifically geared towards maximum speed, given that many deals depend upon quick access to funds.
While residential loans can longer (4-6 weeks on average) commercial bridging finance can mobile in well under a week, actually paying out within 5 days.