A charge on a bridging loan indicates the order in which the outstanding finance will be repaid, should you default on repayments or your property is repossessed. When it comes to the different kinds of charges available, it will depend on a range of criteria as to which type is applied to your bridging loan.
In this short guide, we give you all the essential information you need on first, second, and third charges and what they mean when it comes to choosing the right bridging loan.
A first charge on your bridging loan means it will be first in line to be paid before any other creditors. A first charge assessment will be added if you own your current property outright or have taken out the bridging loan to clear an existing mortgage.
As it will be the only secured finance you have in place on the property, your bridging loan will be the first charge when it comes to payment. It can then be paid off first and in full once you have sold the property and released its equity or secured a new mortgage.
A second charge bridging loan will be applicable if it is against your primary property where there is an existing mortgage already in place. As this mortgage is considered the first secured debt on the property, it will be the priority to be repaid should the property be repossessed. As the second charge, the bridging loan is then second in the queue to be paid out from any remaining equity once the property has been sold.
The final charge against a bridging loan is known as a third charge and is not as commonly used as first or second charges. A third charge can be put in place if you already have a first and second secured loan – or charge – against the property in question. This third charge can only be cleared once the first two priority loans are paid back. This makes a third charge riskier for bridge finance providers, as they may need to consider alternative ways of recouping their loan. It can also significantly increase the debt burden on the borrower.
Third charge bridging loans are possible to obtain, although many lenders can be reluctant to offer this type of bridging finance.
Always Get The Right Advice
Before you begin to apply for a bridging loan, you should always speak to a bridging loan advisor or broker such as Finbri. A bridging loan expert can guide you through the different types of loans available and identify the correct charge for your circumstances. Particularly with second or third charge bridges, which can be more challenging to obtain, you will also be able to understand what is involved and make an informed decision as to whether a secured bridging loan is the right option for you to take.