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First, Second and Third Charge Bridging Loans

There are several different types of bridging finance available. Find out more information about first, second and third charge bridging loans.

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 16th September 2019 *

There are several different types of bridging finance available, though what’s best for you will depend on a number of factors. 

In this article we look at first, second and third charge loans and provide the key information you need to know to make an informed decision, including: 

For advice and recommendations tailored to your circumstances, call us on 0808 189 2301 or make an enquiry to speak with one of the experts we work with. We’ll match you with a broker who specialises in bridging loans, we don’t charge a fee and there is no obligation. 

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How do bridging loans work? 

Most bridging loans, whether they are first, second or third charges, are offered on a short-term, interest-only basis. 

Rates and fees can be high, but they’re usually faster to arrange than mortgages and can be more flexible, since much of the lending criteria hinges on the viability of the exit strategy, i.e. how the debt will be repaid at the end of the term. 

These exit strategies can vary, but are commonly through a remortgage or the sale of a property.

What are first and second charge bridging loans?

When you’re offered bridging finance, whether the capital is a first or second charge loan depends on whether you have any other finance secured on the property, and the ‘charge’ type basically denotes which lender has priority of repayment if you default.

For example, if you take out a bridging loan on your main residence that already has a mortgage in place, the bridging loan will be classed as a second charge bridging loan. 

As your original mortgage is classed as first charge debt against the property, the mortgage lenders would take priority for repayment in the event of repossession, and the bridging loan would be repaid from any remaining equity.

First charge bridging finance explained

To stick with the same example, if you took out bridging finance to pay off your existing mortgage, the mortgage itself would be settled, leaving just the bridging loan in place, which would therefore be a first charge secured against your home.

Charges can be placed on the property you want to buy, the property you’re selling, or both.

Can I get a second charge bridging loan?

Some lenders won’t offer bridging finance as a 2nd charge loan, but there are specialist providers who will consider it, depending on the viability of the deal.

All bridging loan applications are assessed on a case-by-case basis and lenders who consider second charge may be more willing to lend under these circumstances if other aspects of the deal are low risk.

For instance, bridging providers prefer applicants to have the following:

  • A strong exit strategy.
  • Clean credit.
  • A good security property that’s likely to be a sound investment.
  • Experience in property development (if the loan is for this purpose).
  • A healthy deposit.

Why the exit strategy is important

For any bridge loan application you will need to prove you have a viable exit strategy as lending decisions often come down to whether the provider is convinced the investment will yield enough capital to settle up at the end of term.

In most cases where there’s property or land involved, the exit strategy is usually a remortgage or the sale of the property but some lenders are open to “non-standard” exit methods, such as using investments, endowments or inheritance to settle the loan.

2nd charge bridging loans are considered higher risk than first, so you’ll need a water-tight exit to offset this risk. 

Providing a deal in principle if your exit is a remortgage may be essential, and it always helps if you have an offer on the table, if your plan is to sell up.

What makes a good security property?

Put simply, a good security property is one that is guaranteed to raise enough to settle the bridging debt through a remortgage or sale at the end of the term.

The lender will be keen for you to evidence that the property is sell-able or remortgage-able.

If the former is the exit strategy, they will look at its location and whether there are factors that might put off prospective buyers, such as leaseholds or non-standard construction.

If you’re planning to renovate an uninhabited property, the lender will be keen to see that you’re capable of pulling off your plans, and will be mindful of the possibility of setbacks and delays, and will also want to know how the works will be financed.

Will experience in property development help me?

It certainly won’t hurt your chances as applicants who can evidence past experience in property development/investment are considered lower risk by most lenders.

If it’s a complex development project, some lenders may insist on experience in property and might ask to see examples of your previous projects, but that isn’t to say it’s impossible to secure bridging finance with no experience whatsoever.

Will a larger deposit help me secure the loan?

Again, it is possible because a large deposit will offset some of the increased risk a 2nd charge bridging loan involves.

Most bridging loans are offered with a loan to value ratio (LTV) of 70–75%, a figure which can drop to between 50% and 60% for high-risk deals.

But if you’re able to stump up extra deposit or security elsewhere (perhaps on another property or a valuable asset), the lender will likely view the deal as safer, offer more favourable interest rates and consider 2nd charge arrangements.

2nd charge bridging loans with bad credit

It should be noted that borrowers with adverse credit will struggle to land a 2nd charge bridging loan, especially if a remortgage is the exit strategy (as getting approval might be more difficult, depending on the scenario).

Moreover, 2nd charge bridging loans in general tend to come with less favourable rates, but that isn’t to say finding the right deal for you is impossible.

As long as you have a viable exit plan and your adverse credit is unlikely to put it in jeopardy, the advisors we work with might be able to pair you up with a lender who offers favourable 2nd charge bridging deals, even if you’ve had credit issues.

We work with advisors experienced in finding mortgage solutions for customers with all kinds of bad credit histories. Find out how they can help you by calling 0808 189 2301 or make an enquiry for a free, no obligation chat.

What are 3rd charge bridging loans?

Third charge bridging finance is something you might seek if you already have 1st and 2nd charge loans against your property.

It works in much the same way as a 2nd charge bridge loan, except the 3rd charge lender will be at the back of the queue when it comes to reclaiming the debt and may have to look at other ways of recouping it.

With this level of risk in mind, bridging finance providers are wary of 3rd charge loans, but that isn’t to say they’re impossible to find.

Can I get a 3rd charge bridging loan?

Only a small minority of lenders are happy to offer 3rd charge bridging loans, usually on a non-regulated basis (meaning that it is not lent on a property you currently live in, which would be regulated), and even then, the overall deal has to be extremely attractive to them.

Given that so few lenders are offering 3rd charge bridging loans, having access to the whole of the market is vital to find a favourable deal. The advisors we work with have exactly that and can help you find the right provider if you make an enquiry.

What will improve my chances of securing the loan?

Your likelihood of securing capital may increase with some providers if the loan amount is substantial or the property is of high value, as the potential rewards might be worth the risk, from the lender’s perspective.

You’ll also stand a better chance of approval for a 3rd charge loan if you meet the criteria outlined in the section above, so that means having a viable exit strategy, clean credit, a good security property and experience in the property market (if the loan is for development purposes).

Speak to an expert today about bridging loans

To get the right advice for you, or if you’d like to know more, call us on 0808 189 2301 or make an enquiry.

The independent experts we work with are whole-of-market brokers, meaning that they have access to a wide range of deals – some of which won’t even be available to the public. 

All advice is free, there’s no obligation to make a purchase, and your credit rating won’t be affected. 

To get the right advice for you, or if you’d like to know more, call us on 0808 189 2301 or make an enquiry.

The independent experts we work with are whole-of-market brokers, meaning that they have access to a wide range of deals – some of which won’t even be available to the public. All advice is free, there’s no obligation to make a purchase, and your credit rating won’t be affected. 

Updated: 16th September 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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