If there's already a mortgage or other loan secured against the property, a bridging loan can either replace that existing charge or sit behind it. The difference affects the lender's priority, risk and, potentially, the cost of the loan.
At a glance
- First charge — the bridging lender has the primary claim over the property.
- Second charge — an existing mortgage or loan remains in place, with the bridging lender ranking behind it.
What is a legal charge?
A legal charge is registered against a property's title and gives a lender security over the property. If the property is sold or repossessed, lenders are repaid according to the priority of their charges.
Where there is more than one charge, they are ranked as first charge, second charge, third charge, and so on.
First charge bridging loans
With a first charge bridging loan, the bridging lender has the primary claim over the property.
This is usually the case when:
- There is no existing mortgage or secured loan; or
- The bridging loan is used to repay an existing first charge in full.
The bridging lender is then repaid first from the property's sale proceeds.
Second charge bridging loans
A second charge bridging loan sits behind an existing first charge, usually an existing mortgage.
The first charge lender remains in place and is repaid first. The second charge lender receives any remaining proceeds after the first charge has been settled.
Because the second charge lender has a lower priority for repayment, it generally takes on greater risk and can therefore carry a higher interest rate than an otherwise comparable first charge facility.
First vs second charge: at a glance
| First charge | Second charge | |
|---|---|---|
| Existing mortgage | None, or replaced by the bridge | Remains in place |
| Repayment priority | First | After the first charge |
| Lender risk | Lower | Higher |
| Typical pricing | Generally more competitive | Generally higher |
| Existing lender consent | Not normally required | Usually required |
Getting consent from your existing lender
If you want to take out a second charge bridging loan, your existing first charge lender will usually need to consent before the new charge can be registered.
This is an important part of the application process, so factor the lender's response time into your overall timetable.
Frequently asked questions
What is the difference between a first and second charge bridging loan?
A first charge bridging loan has the primary claim over the property. A second charge bridge sits behind an existing mortgage or other first charge.
How do second charge bridging loans work?
A second charge bridging loan lets you borrow against a property while keeping an existing mortgage in place. The bridging lender takes a second charge, with the existing mortgage repaid first if the property is sold or repossessed.
Can I take out a second charge bridging loan without telling my mortgage lender?
No. Your existing first charge lender's consent is typically required before a second charge can be legally registered against the property, and most mortgage terms require you to notify them of any additional borrowing secured on the property.
Is a second charge bridging loan more expensive?
Generally, yes. Because the lender ranks behind the first charge, it takes on greater risk, which is typically reflected in the interest rate.
What happens to the second charge if I sell the property?
On sale, proceeds are used to repay the first charge lender in full first, with any remaining balance going toward the second charge. If the sale doesn't cover both in full, the second charge lender absorbs the shortfall.
