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Like many homeowners with a significant part of equity built up in your property, not being able to access it when you need to can be frustrating.
You may want to use it to buy a property, like a holiday home or a buy-to-let, for example, or make a start on some building renovations. You need a deposit or an upfront payment but can’t make your move because you can’t access the funds straight away.
If you haven’t considered it already, a Second Charge Bridging Loan could be just the finance arrangement you need to raise funds fast and get things moving in as little as a few days.
Second Charge Bridging Finance is a short-term secured loan that runs alongside your existing mortgage, using the equity you have in your property as security. This is different from a Second Charge Mortgage, which is a long-term secured loan.
A second charge loan comes into play if you already have a mortgage on your property and you need to raise short-term finance. It’s different from a First Charge Bridging Loan, which helps mortgage-free homeowners / or new buyers access their equity as soon as possible.
Before applying for a second charge bridging loan, your existing mortgage lender will need to give you permission to secure another loan against your property.
As with all finance arrangements, there are some risks. If you default and your property is repossessed by the lender and sold, your existing ‘first charge’ mortgage will be paid off first. Any funds left over will be used to cover the ‘second charge’ loan, however, if there is a shortfall, you will be liable for it.
There are two types of bridging finance – open and closed.
With a closed bridging loan, the lender requires to know how you plan to pay it off at the end of the term. Closed loans are usually paid off within a few weeks or months.
Open bridge loans are usually used to quickly pay for a transaction. These can work in your favour because you have a whole year to pay it back, and the lender won’t ask for an exit plan.
Because second-charge bridging loans can be awarded quickly, you don’t need to adjust your existing mortgage arrangements to release capital.
Because repayment terms usually last a year, you’ll have time to move to longer-term lending like a mortgage or remortgage and take advantage of lower interest rates.
There are no early repayment charges, so you can pay the loan off as soon as you like with no penalty.
Another surprising benefit is being able to spend the loan on commercial as well as domestic ventures. You can use the loan as commercial finance for a business transaction or commercial development finance if you’re planning to expand your business. You can even use it to pay a tax bill.
Loans can range between £25,000 and £500 million. You may be able to borrow up to 70% Loan to Value (LTV) which differs from lender to lender.
We can help you calculate the amount you could borrow based on the equity you have in your property and your mortgage balance.
We can then look at the whole of the market to identify a bridging lender that will offer you the best value in terms of fees, interest rates and turnaround time.
Interest rates can range between 0.4% to 2%, with both fixed and variable rates on offer. Interest can be charged monthly or deferred to the end of the loan period.
Arrangement fees apply, so it’s important to understand what these are upfront.
Bridging loans are brilliant for quick turnaround finance, with some lenders paying the funds directly into your bank account within as little as five days.
To achieve this, some good groundwork will have been done between a specialist bridge loan broker and the borrower beforehand. Ensuring the lender has everything they need in advance will speed up the application process so you get your decision sooner.
The fastest, simplest route to getting your application approved and getting your funds in the bank is going through an experienced broker familiar with bridging finance arrangements.
It’s important to contact a broker sooner rather than later so we can find out what you need and help you get everything ready in advance to proceed smoothly.
Here’s a checklist to help you make a start:
Although a lender is more interested in the value of your home and the equity you’ve accumulated, they’ll want evidence that you’ll be a responsible borrower.
When choosing to work with a mortgage adviser, it’s always advisable to choose one that is authorised and regulated by the Financial Conduct Authority (FCA) in England and Wales. You can use the broker’s Firm Reference Number to check whether they are on the financial services register and have an office registered in England. All of our advisers are fully FCA regulated, get in touch with us today to start the process of releasing equity.
FCA disclaimer
Based on our research, the content contained on this website is accurate as of most recent time of writing. Lending criteria and policies may change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information.
The information 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 / financial 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, commercial, bridging, mortgages are not regulated by the FCA.
Please think carefully before securing other debts against your home or releasing equity from a property you own. As a mortgage is generally secured against your home or your investment property, it may be repossessed if you do not keep up with repayments on your mortgage.
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Sort Commercial Solutions LTD is authorised and regulated by the Financial Conduct Authority under registration number 949625. Registered in England and Wales under registered number 13207282. Registered office: Kemp House 152-160 City Road, London, EC1V 2NX
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