Benefits of a Second Charge Bridging loan

An increasing number of people in need of extra funds are turning to second charge bridging loans to raise capital, in order to prevent disturbing their existing attractive mortgages.

Demand for second charge lending is set to increase throughout the year. In a sustained low-interest rate environment, it now often makes more sense for a borrower to release equity on a property by taking out a second charge, rather than the prospect of refinancing away from their current deal.

What’s more, bridging loan rates are now lower than ever, with rates for second charges currently starting from 0.75% per month.

What is a second charge bridging loan?

A second charge bridging loan could be the ideal solution for those who already have a mortgage secured against their property but require further funds for only a short period of time.

Second charge bridging loans can be used for many reasons, such as purchasing an investment property, business expansion, and redevelopment of an existing property, to name but a few.

A second charge bridging loan can be secured against many property types, including buy-to-let, residential and commercial assets, and typically has a 12-month maturity, unlike a secured loan which is a form of longer-term financing.

As it sits behind a first charge loan, a second charge will often require consent from the first charge lender and is usually more expensive than a first charge, reflecting the additional risk taken by a finance provider.

When are second charge bridging loans beneficial?

1. You’re on a low rate/interest-only mortgage

Using a second charge bridging loan means you keep your existing mortgage rate. There would be no changes to your existing mortgage terms and conditions. A second charge could also allow for more flexible repayment terms, which could potentially save you thousands of pounds in interest.

2. You’re locked into a fixed rate with early repayment charges

If you must pay a large penalty for stopping/switching your existing fixed rate mortgage early, a second charge loan may be cheaper as the existing mortgage stays in place and the penalty is not charged.  It would be beneficial to run a cost comparison in this scenario.

3. You’re unable to secure further funds from your mainstream lender

Mortgage rules have become stricter in the past couple of years, with lenders applying tough ‘stress’ tests to make sure borrowers can meet repayments if interest rates rise.  However, second charge bridging loan providers don’t rely on the same tests and can tailor a solution to suit your individual borrowing needs. Second charge bridging loans are also particularly helpful for those with unusual income structures, such as the self-employed, or those with complex financial backgrounds.

4. You need the funds quickly

Where a mainstream bank may take several months to put together a loan for a borrower, a bridging finance company is often able to make lending decisions within hours of initial enquiry, so funds can be released quickly, sometimes even in less than 2 weeks. A second charge bridging loan can be a useful tool for those who simply need a rapid cash injection.

How much can you borrow?

You can borrow a maximum of 70% loan-to-value and loans can be arranged from £50k to £50m. The actual amount will depend on the available equity in the property and affordability of the loan.

How can 978 Finance help?

At 978 Finance, we believe a second charge bridging loan is about empowering borrowers to enable them to take advantage of time-sensitive opportunities that can make or save them money.

As an example, we helped a client who required a £567,000 second charge loan on his £1.7m property that had an existing first charge of £100,000. The client was part way through refurbishing some of his investment assets, but the process was taking longer than expected. He didn’t want to remortgage to raise further funds, as he intended to sell the investment property as soon as the refurbishment works on the assets were complete.

In just 9 days, 978 Finance provided a £567,000 second charge bridging loan at 50% LTV. Interest was retained at 0.75% over 12 months, with no exit fees, or early repayment charges. A minimum term of 3 months applied in this case.

Our second charge bridging loan gave the client time and the flexibility to carry out the works and significantly increase the value of his investment property. The client will have the option to pay back the 2nd charge loan when his other assets sell or wait until this project sells giving him plenty of options.

In a sustained low-interest rate environment, second charge bridging loans will continue to offer significant financial savings for a wide range of borrowers, not just those who may struggle to obtain finance through traditional routes. At 978 Finance, it is our mission to help our commercial clients every step of the way in raising funds for their next project.

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