2nd & 3rd Charge Bridging Loans – A Guide

By Helen Jackson 25th March 2022

It can become confusing fast when you’re looking to take finance out on a property. Because there are so many different terms out there floating around, it’s hard to understand which apply to you.

If you’ve been researching bridging loans, you might have a handle on what they are and the purpose they serve. But if you’re still unfamiliar with first, second, and third charge bridging loans — this guide is for you.

In this piece, we’re exploring what they are, how they differ from first charge loans, how you can get one, and in what scenarios you can use them.

Read on to learn more.

What are 2nd and 3rd charge bridging loans vs a 1st charge loan?

A first charge loan is the initial finance you take out against a property, usually a mortgage or a bridging loan. The term ‘first charge’ means that when you sell the property, the first charge lender will receive their payment in full before any other lenders listed as second or third charges.

A second or third charge bridging loan is additional funding taken out against the same property. You will need to seek permission from your first charge lender if you plan to take out other finance as a second or third charge. Second and third charge bridging loans can be taken out against all types of properties, including commercial, buy-to-let, and residential.

What are 2nd/3rd charge bridging loans often used for?

There are many things you can use your second or third charge bridging loan for, but the most common three are:

Refurbishment of a property

If you’ve run out of funds and need to finish a project, a second or third charge bridging loan can give you the necessary funds to finish it, add value, and make a bigger profit.

Raising funds to invest in a new property venture

The property market is fast-moving, so being able to secure a short-term bridging loan quickly means you can move on new and exciting property ventures, even while you’ve got another on the go. This means you can expand your property portfolio quickly.

Raising funds to expand your company

Getting a second charge or third charge bridging loan can release equity in your current property, particularly if you can’t get out of your first charge agreement due to early repayment fees. This means you can free up some cash to invest in your company however you wish.

What are the advantages of a 2nd/3rd charge bridging loan?

The most obvious advantage of these bridging loans is access to finance fast. You don’t have to wait around for weeks or months as you do with traditional lenders. Providing you’ve completed all the necessary paperwork and forms, your application can be approved quickly, and you can have money in your account in as little as 72 hours.

And what are the disadvantages/risks?

Taking on additional debt is always risky. And with second or third charge bridging finance, you should expect to pay higher interest rates. And as you’re probably aware, the interest rates on a straightforward bridging loan are not low, to begin with.

The interest rates are higher with second or third charge loans because the lenders are not first in line to receive payment from you. They have to queue up behind the original lender for payment — which might mean they won’t always receive payment in full. So they protect their investment by charging the borrower higher interest rates.

What criteria do I need to apply for a 2nd/3rd charge bridging loan?

When you’re applying for a standard first charge bridging loan, the lender will want to see a viable exit strategy — i.e. how you plan to repay the loan in full. And it’s no different when you’re applying for a second or third charge bridging loan.

Your exit strategy might be tied to the sale of a property, remortgaging, or even buy-to-let. Whatever it is, the lender will need some assurances that you’re capable of paying it back. You’ll also need a property that can offer good security.

If you have experience in property already, this could help give you credibility with the lender. They don’t necessarily focus on your creditworthiness, as you’re not repaying the loan based on your income or anything like that. Instead, it’s based on the value of the property you’re using to secure the loan with.

All lenders’ criteria differ, so it’s important you understand exactly what they need from you to make the application process as smooth as possible.

How do I apply?

If you’re wondering, “how can I apply for a bridging loan?’, the answer is simple. You can apply directly with the lender you think best suits your needs.

The best way to find the best deals is to compare a variety of bridging finance specialists, which you can easily do from our directory. We’ve compiled a list of reputable lenders; take your time to browse each of their profiles and visit their site directly for more information, or find their contact details on our site.

To sum up

Taking on additional finance might seem daunting, but it can be a great way to access fast cash to inject into your property projects or grow your business. However, it’s essential to weigh up the pros and cons before taking out second or third charge bridging finance, and if you have any questions, you should always talk to a specialist for advice.

Ready to compare lenders? Visit our bridging loan directory.