This guide will find all you need to know about what a second charge bridging loan is and the difference between a first charge (1st) and second (2nd) charge bridging loan.
The main difference between a first charge and second charge bridging loan is that a first charge bridging lender will have the first charge on the property. Meaning there is no mortgage or any other loan against the property. The second charge bridging loan is when the lender has a second charge since there is already a loan against the property, i.e., a standard mortgage; in this case, the mortgage lender will have the first charge. Second charge loans also carry a higher interest rate.
How Does A Second Charge Bridging Loan Work?
A second charge bridging loan is a short-term loan secured against a property that has an outstanding mortgage.
It can be used for home improvements such as conversions and extensions on the property.
Most lenders will lend from £25,000 upwards on this type of loan, with a maximum of 70% loan-to-value.
It works the same as a standard bridging loan, where you will go through an application process to be approved for the loan, and payment terms agreed with the lender to pay the money back within a short period.
There are additional fees on top of the loan, such as a monthly interest rate that can be fixed or variable and additional fees, just like a standard bridging loan.
A second charge bridging loan’s primary purpose is that it sits behind an existing mortgage or loan and can be used for home improvements and renovation to the property.
This option can be used if you have an existing mortgage or loan secured on the property.
What Is The Difference Between A First Charge Bridging Loan and Second Charge Bridging Loan?
A first charge bridging loan is where the loan is the first or only loan secured against the property.
On the other hand, a second charge bridging loan can be taken out when a loan or mortgage is already secured on the property.
The main difference between the two is that with a first charge bridging loan, you need to have no mortgage or loan already taken out on the property, so if you have any mortgage or loan secured on the property, a first charge bridging loan would not be an option to use.
The second charge bridging loan can be used along with an existing loan or mortgage secured against the property, so if you have a mortgage on your house and perhaps want a short-term loan for some home improvements, a second charge bridging loan is the option for you.
For most people, second charge bridging loans will be a more popular option as it can take years to pay a mortgage off on a property; however, first charge bridging loans have many different uses.
Fixed Rate v Variable Rate
Bridging loans can have a fixed or variable rate.
A fixed-rate means the interest is fixed across the loan term and that all monthly payments will be the same.
A variable rate is where the interest rate can change and is usually set in line with the Bank of England base rates.
It means the interest rate payments can go up and down with a variable rate, meaning you could get a high-interest rate while paying back the loan.
Interest rates for a bridging loan usually start from 0.40% and dependent on which rate you get, will depend on if this stays the same or goes up and down throughout the loan, which will also determine whether it is a high or low monthly interest rate.
For more information on bridging loans
Property Finance Partners specialises in securing first and second charge bridging loans for clients across the UK. We are able to secure low rates fast and charge no commission. To find out more contact Property Finance Partners on 020 3393 9277 or Email: [email protected].