What Are The Notable Benefits Of Taking A Second-Charge Bridging Loan?
A growing number of investors are opting for second-charge bridging loans to meet their financing needs when buying investment properties or adding extra capital to their business. Additionally, second charge bridging loans are continually used to refurbish and protect property value with existing mortgages.
That is not all. According to experts, the demand for second-charge loans is expected to rise in the year. In an environment where interest rates have been low for some time, it makes financial logic for an investor to take on extra loan funds and release some of their equity held in the property. Taking a second charge on the property is better than the investor refinancing outside the existing mortgage.
This is why taking a second charge bridging loan appeals more to investors with a mortgage on their property whenever they require additional financing within a short time. The different uses of a second charge bridging loan may include buying a commercial/investment property, expanding an existing business, or redevelopment of an old building or property, among others.
Meaning Of A Second Charge Bridging Loan
A second charge bridging loans ranks behind after an existing mortgage or loan. A second legal charge is usually secured by the equity left in the property after issuing the first mortgage or loan.
Additionally, a second legal charge can be secured by different properties such as residential, commercial, and buy-to-let properties.
While secured loans are examples of long-term financing plans, commercial bridging finance is usually a short-term loan, with maturity periods of 12 months.
However, the senior charge lender must consent to issue a second charge because the second charge sits second in priority and seniority after the first charge mortgage. Also, the second charge mortgage is expensive compared to the senior debt because the loan provider is incurring additional risk by accepting loan payments after the first charge mortgage is paid.
When Is It Best To Use Second Charge Bridging Loans?
Taking out a second-charge loan is often beneficial when you have secured a mortgage on low-interest rates or interest-only loan terms. Remember, taking out a second charge bridging loan implies that you maintain the interest rate on your existing mortgage; there are no changes made to the terms and conditions of the existing mortgage.
Also, a second charge is beneficial when issued on flexible loan repayment terms, saving the borrower a lot of interest payments.
2. When You Are Limited To A Fixed Rate With Penalties For Early Repayment
You will find a second charge a cheaper financing option if the lender charges you a penalty when you stop or switch your current fixed-rate loan early. In this case, taking a second charge loan means the existing mortgage stays in place, and there is no penalty imposed on the borrower. However, always carry out a cost comparison when you find yourself in such a situation.
3. When You Cannot Secure Extra Funding From Your Main Lender
The last few years have seen mortgage lenders offer more stringent lending terms to borrowers, including the use of “stress” tests and scenario analysis to ensure borrowers can repay loans when interest rates go up. On the other hand, terms of second charge bridging loans are not necessarily rigid, allowing lenders to customize a loan product for a specific borrower.
Because of their flexible repayment plans, second-charge bridging loans are suitable for investors with irregular income flows, such as self-employed business people.
4. You Are In Urgent Needs For The Funds
The conventional lender, such as the bank, may need an extended period (sometimes months) to process a loan and avail funds to the borrower fully. On the other hand, a bridging loan provider can conclude a loan agreement within hours of a formal application. That way, funds are released more quickly (in some cases within a week) to assist the borrower.
A second charge bridging loan will swiftly provide the funds you need if you are looking for a quick capital injection into your property or business.
How Much Can I Borrow In A Second Charge Bridging Loan?
You can borrow up to 70% of the value of your security, with loans of between £100k and £5m available for lending. The exact amount you can borrow is determined by the interest on the loan (cost of the loan) and the value of your property’s equity.
This article does not necessarily reflect the opinions of the editors or the management of EconoTimes