Bridging finance is a lot more flexible than a typical mortgage, and there are numerous products on the market.
The best option for you depends on your circumstances, finances, and what you need the bridging loan for. Here we'll run through additional charges on the same property, and the key considerations you need to bear in mind.
For bespoke advice around arranging your ideal bridging loan borrowing, give the Revolution Brokers team a call on 0330 304 3040, or drop us a message to firstname.lastname@example.org.
Can I Get a Bridging Loan as a Second Charge Product?
You can do, yes - depending on what other debts are secured against the property.
If you have a mortgage already, and then secure a bridging loan against it, you are taking out the new borrowing as a second charge.
Much depends on the lender, how much equity you own, and what you are borrowing since your mortgage lender would be first in line to claim the proceeds should you fail to keep up with the repayments and end up in a repossession scenario.
How Does a First Charge Bridge Loan Work?
This loan is simple; you need a bridging loan to pay for a development or an investment and secure the debt against your property. Alternatively, you use that loan to repay your current mortgage.
Bridging finance is the only debt secured against the property.
Is a Second Charge Bridging Loan Harder to Secure?
Where you have an existing mortgage or form of borrowing secured against your property and then take out a bridge loan, you commit to repaying two different loans.
If you have a strong exit strategy in place and are a low-risk applicant, this isn't likely to be a deal-breaker. However, the lender will need to know about the first charge debt and your equity in the property.
What are the Criteria to Apply for a Bridge Loan as a Second Charge?
Some bridging finance providers do not offer second charge loans, but many will. The business strategy and stability of your exit plan will have a big difference.
There aren't any fixed criteria, so each lender will decide whether they are comfortable accepting a second charge. That assessment includes looking at:
- Your credit history.
- How stable the exit plan is.
- What equity is available in the property?
- How much deposit you have available.
- Whether you are experienced in developments, if that is why you are taking out a bridging loan.
Can I Get a Second Charge Bridge Loan If I Have Adverse Credit?
Possibly, but it's likely to be much more difficult. If you plan to remortgage the property to pay back the loan, you'll need an agreement in principle to show the lender that you can pay back the debt, and will be able to secure a mortgage despite your credit problems.
Second charge loans are usually charged at higher interest rates, given the additional risk to the lender.
Provided you have a strong exit strategy and can demonstrate that you can afford to pay back the debt, we'll likely be able to find a bridge loan provider for you.
How Important is my Exit Strategy in a Second Charge Bridge Loan Application?
The exit strategy is vitally important, and usually the core factor in whether a lender will approve your application.
Many applicants plan to remortgage or sell the property to repay the debt. Some specialist lenders will consider less conventional repayment plans, such as using an inheritance or investment fund.
Second charges are always riskier, so your exit strategy will need to be reliable to achieve the borrowing you need.
Is There Such a Thing as a Third Charge Bridging Loan?
There is! A third charge exists where you already have a mortgage and a loan, or two secured forms of borrowing, already secured against your property.
The application process works the same, but the lender's level of risk is much higher, so the eligibility criteria will be stricter.
How Can I Secure a Bridge Loan as the Third Charge on my Property?
Third charges aren't standard, and you will need the assistance of an experienced broker to source a lender who will consider your application.
Your exit strategy and rates of interest and the investment's security all need to be compelling to enable a lender to accept the risk.
Which Exit Strategies are Acceptable on a Third Charge Bridge Loan?
Exit strategies are even more vital for a third charge loan since the lender will need to be sure that you can repay them - since they will be third in line to recoup their debt should the property be repossessed.
Can I Offer Another Type of Security for a Bridge Loan as a Second or Third Charge?
Most bridging loans are secured against properties. Lenders need to know what the property is worth, and that it will be possible to sell it on the market.
Factors include where the property is based and whether it is a standard construction or a more unusual home that might be harder to sell.
Frequently Asked Questions - Second and Third Charge Bridge Finance
The Revolution Brokers team has compiled some of our more frequently asked questions about bridge loans as additional charges on the same property!
Can I Get a Second Charge Bridge Loan with No Development Experience?
Having property development experience is a bonus, but being new to bridging finance doesn't mean that you won't find a deal.
Previous experience means that you are a lower risk applicant, and the lender has reasonable assurance that you will successfully complete the project.
Do I Need a Higher Deposit to Get a Bridging Loan as a Third Charge?
Not always, but it is useful! The higher your deposit, the lower the risk to the lender. Therefore, if you're applying for a bridge loan as a second or third charge, if you can offer a substantial deposit, you have a better chance of being accepted.
Most bridge financiers require a deposit of at least 25% to 30%, but lenders will often look for a 40% or even 50% deposit for higher risk proposals.
What Criteria Impact my Ability to Get a Bridging Loan as a Second Charge?
Lenders will consider several factors:
- How much you wish to borrow.
- The value of the property.
- Viability of the development project.
- Your exit strategy.
- Credit rating.
- Security on offer.
- Your experience in developments.
Expert Advice with UK Bridging Loans
Suppose you're seeking a bridging loan and have a property to use as security with a pre-existing mortgage. In that case, it is essential to seek support from a whole-of-market broker who can negotiate those terms on your behalf with an applicable lender.
Give the Revolution team a call on 0330 304 3040 or send an email to email@example.com for more information or to get started with your application!