Second Charge Bridging Finance

And this time on the Bridging Finance podcast, we're talking all about Second Charge Bridge Finance with Scott West from Propertyze. Thank you for joining us again, Scott. How are you? Yes, very well. Thank you. Thanks for having me again. Good. And you're welcome. So let's get straight into these questions that we've got here then. So first of all, what is a second charge bridging loan and how does it work? So a second charge bridging loan for the client is identical to a first charge bridge in how it functions, how it's set up. The difference is how they secure their legal charge. So normally you have your home and you have a first charge lender, which is your primary lender on there, but they will have what's known as a first charge. They get first rights to the property in the event

of repossession. They get their money first, basically. A second charge lender sits behind them, as the name suggests, they're second in line for their money. So the risk is slightly higher to a lender, but the purpose of the bridging loan itself is the same in how it's set up, how it functions to the client. So the difference to a client is just the loan's advantage. You better borrow slightly less because you probably have a first charge in place, which I'm sure we'll come on to in a moment anyway. Yes. Okay. There we go. Well, really clearly explained there. Thank you for that. And you also talked about the difference between a first and a second charge there. So following on then, what can second charge bridging loans be used for? When would you

use or need a second charge bridging loan? This one's slightly wider because usually we would cover off regulated and unregulated bridging. In the case of a second charge bridge, they can be the same thing. I'll start with a simple answer. If you were doing it on a Bikes Let or something you don't plan to live in, it would typically be unregulated. So in this scenario, perhaps you've got a Bikes Let lender as your first charge, but you want to do some more work on the property before it's due for refinance. So you borrow some more money against it on a second charge bridge. That would be one example to refinance. A little bit of capital out to do some refinance works, but you can use it to release capital to buy another property if there's enough equity in

there. Any real real estate purpose, I guess, is the answer to that one. But you can also use a second charge bridge against your home. And as long as the purpose is for business use, most lenders will consider that to be unregulated, which gives you the benefit of being able to have a 24 month term against the home on a bridging loan. Whereas with a normal regulated bridging loan, you'd be limited to 12. So if you have your main residence and has a lot of equity in it, can sometimes be sensible to use the bridging loan against that property, and that allows you to get a lot more equity out for what you want to do. Obviously, I have the caveat that if you put the bridge against your home, obviously that's your main residence.

That is the one that's then going to be at risk in the event that you default on the loan. But you have a lot of uses for it. Right. Okay. Yes, it sounds that way. Just something to bear in mind there at the end as well. This next question, I think, really is an extension of the last one there. So who is a second charge bridging loan for? Virtually anybody looking to raise further finance. As I said, anyone who's identified the new opportunity, I need to move quickly. As always, bridging loans are much faster than term loans. So if speed is the primary key point the client to look to have, then consider the bridging loan and we can obviously secure it against any assets you have. And if in the case that they have loans against them, then the second

charge is how we structure it. Okay. So that's clear there. Now, do you need consent for a second charge? Good question. Yes, we will need consent from most lenders. And this isn't very onerous. This is simply your solicitor writing off and getting consent. It's pretty straightforward to do that. There are a few lenders who don't require it. And there is a very small group who will not give consent, but primarily most will give consent and it's straightforward. It's just a bit of paperwork. Okay. So that's good news there. Straightforward. Now, how much can you borrow with a second charge? Depends on the lender and depends on the asset and type. So again, like we've discussed on other regulated and unregulated bridging loans for first charge,

a lender is going to give you more loan to value if the property is of good standard in a good location and sellable. But generally speaking, 65% isn't absolute. We can get 65% all day long. If you're looking for 70%, 75% or even 80%, that property needs to be in a very good area and needs to be a clear defined exit for in place if you want to start borrowing higher loan to values. But it can be done. So it's really circumstantial depending on what the client needs because the more you borrow, the higher the cost. So there's always that to bear in mind. Right. Okay. So yes, something there again too, to bear in mind, a key point. Now, you've mentioned this is quick finances, isn't it? So how long does it take to put a second

charge on a property? Very similar to standard bridging. I would say it can be done as quickly as two weeks. I did a bridging loan just this week that completed in 14 working days. So it can be done very, very quickly. I like to tell people to give me more time than that just because there's always something at the equals. There's always one question that pops up. Aim for four weeks. If we can do better, we will. But four weeks is a pretty good standard. Yeah, that's pretty quick. But again, something to note there, a good point. So just in summary, really, what are the advantages and disadvantages of a second charge bridging loan or using one of these? The advantages are that it allows you to release capital from the property without having to

refinance the entire loan. So if you have a cheap first loan, for example, you have a TMW mortgage on there at first place, it doesn't make sense necessarily to refinance the entire property if the first charge is quite cheap. So the second charge bridging loan allows you to get the capital out and only pay the expensive rate on the small amount you're borrowing. That couples them with the disadvantage of you don't have a second charge on a property that we need to exit at some point. And more often than not, that's the refinance of the main property or other properties in that portfolio. So while it can be cheaper on the initial kind of structure, and this is quite a unique, quite a specific scenario, I guess, but in that

the same disadvantage to that same advantage is that mortgage might need to be refinance at a later date anyway to repay that bridging loan. So while it's great upfront, if you need quick money to get whatever it should try to do, tax bills, new property refurbishments, the disadvantage is you do need to refinance that at some point. So be mindful of where that money is going to come from. Okay. Pros and cons there. It's all about looking at your options, isn't it? But that's good to know. So for anybody listening to this that's looking to do this, how do I apply for a second charge bridging loan? How does that work? Firstly, speak to a broker where very easy to kind of give you guidance and some of the initial

figures. I guess people usually people looking for figures upfront. Speak to us. We'll give you some really quick overland how the structure would look, what we can and can't do, what learned values we could probably achieve for you. If that's something you're looking to proceed with, we'll take you off to a few lenders, get some terms together and then present back to you the real terms, the real offering you can have. And from there we'll run the paperwork, the legal evaluations and take as much of that process out of your hands, off your hands as we can. Okay. There we go. Now we've covered the main points there, I think, haven't we Scott? Have you got anything else you'd like to add at all?

It's not a great deal to add. I mean, if you want to know more about bridging, we obviously have some other podcasts on bridging as a whole, regulated and unregulated team. But yeah, just be mindful of really how that repayment vehicle is going to work, how we're going to repay that back because these have a fantastic use of being able to get out the equity on homes. We have fixed mortgages already. We do have to really think about the most cost effective way of repaying that loan back without detrimentally impacting the yields or incomes across the rest of the portfolio. But again, we'll have that conversation with you upfront. Okay. What a key point, key note to end on there. Thank you for that Scott. Hopefully,

we've helped a few people out on the episode and I'm sure we'll speak to you again on the podcast scene. Fantastic. Thank you very much.