What Is a Second Charge Loan or Mortgage?

You’ll find the concept of the second charge explained in relentless detail by countless financial specialists online. Nevertheless, finding a definition that’s not disastrously overcomplicated is something entirely different.

So for those who’ve been wondering what second-charge loans and mortgages are all about, you’ll find a concise overview and explanation detailed below:

What Is a Second Charge Loan?

A second-charge loan, aka second-charge mortgage, provides homeowners with the opportunity to raise capital by using their property as security. An alternative to a personal loan or remortgage, a second charge loan is simply a second mortgage taken out alongside a primary mortgage.

Remortgaging is different in that a remortgage deal enables the borrowers to pay off their prime remortgage in full, switch to a new mortgage deal (often with a new lender), and continue to pay one mortgage as before. The benefit typically is lower monthly repayments or lower overall borrowing costs. Remortgaging is also an option for raising extra cash to fund property development works, extensions, renovations, and so on.

While there are similarities between the two, second-charge mortgages are not the same as remortgage products. Primarily, a remortgage deal simply converts your current mortgage into a different type of mortgage, while taking out a second charge mortgage means having two separate mortgages secured on your home.

The two products also differ in terms of eligibility. When taking out an initial mortgage or remortgageing a property, eligibility is determined by the applicant’s credit rating, proof of income, financial status, and often the size of the deposit they can pull together. With a second-charge mortgage, applications are typically scrutinised exclusively based on the borrower’s equity. Or, in other words, the value tied up in their home.

It may still be necessary to provide evidence of your ability to repay the loan as agreed, but credit checks and extensive financial background checks are usually unnecessary.

It’s important to be aware of the fact that ‘equity’ in this instance refers to how much of the borrower’s property they own outright at the time of the application. In a working example, the applicant has a £300,000 mortgage on their current property and has so far repaid £125,000. This would mean they have £125,000 equity, which could be used to secure a second charge mortgage.

Again, by general eligibility.

What’s particularly useful about a second-charge mortgage is that loans are often available for as little as £1,000. Hence, there’s no requirement to borrow more than you need if you’re looking to tackle a relatively minor project.

Should I apply for a second-charge mortgage?

A second-charge mortgage is one example of the countless secured loans available for homeowners. Even if you are perfectly eligible for a second-charge mortgage, it may be useful to first consider the alternative options available.

For example, while it’s possible to borrow as little as £1,000 by way of a second-charge mortgage, an unsecured personal loan could be more affordable for any sum lower than £10,000. Likewise, if you plan to fund a short-term project and will have the means to repay the loan balance within a matter of months, you could save time and money with a bridging loan.

Particularly where poor credit applications are concerned, it’s worth comparing all available options both on and off the UK High Street. Compare the market in full under the supervision of an independent broker to see which secured (and unsecured) products best suit your needs.

Bridging Loans Can Help with VAT Too

At a growing pace, bridging finance is becoming a force to be reckoned with in the UK’s specialist lending market. Providing rapid access to significant sums of cash for just about any purpose, bridging loans take convenience, flexibility, and accessibility to an entirely higher level.

But even at this stage, the true versatility of bridging finance isn’t what you’d call common knowledge. You may associate bridging loans with fast-paced property purchases, but how about a bridging loan for VAT?

For commercial property investors and developers, an affordable bridging loan to pay VAT can provide a welcome lifeline at a critical juncture.

What is a bridging loan for VAT?

As you’ve probably figured out by now, bridging loans for VAT are short-term loans that can be used to pay the VAT on a commercial property purchase. As things stand right now, the vast majority of commercial property purchases (where the property is less than three years old) require a 20% VAT payment. The VAT must be paid on top of the price of the property at the time of its purchase, which can significantly elevate the costs of the transaction.

The more expensive the property, the greater the VAT outlay for the buyer.

Of course, commercial property buyers go on to claim this VAT back from HMRC at a later date. The problem is that, depending on the specifics of the case and application volumes at the time, it can take as long as three months for refunds to be actioned. During which time, the investor could be left somewhat out of pocket.

Loans and specialist credit facilities in general are frequently used by investors to cover VAT costs, but none have proven quite as flexible or affordable as the bridging loan.

How a VAT-bridging loan works

As with all bridging loans, a VAT bridging loan is offered as a short-term credit facility for a specific purpose. In this instance, the borrower is able to apply for a minimum of, say, £50,000 with no upper limits, secured on their existing property or qualifying assets. Applications can be processed and funds delivered in as little as five working days, after which the full balance is repaid on an agreed date. Bridging loans can be arranged over terms of anything from a few days to 18 months, in accordance with the preferences of the borrower.

The lender makes the money available as quickly as possible, the borrower uses it to pay the VAT, and the property purchase goes ahead. When the VAT is refunded by HMRC, the funds are used to repay the loan in full, along with any additional borrowing costs incurred. The quicker the loan is repaid, the lower the overall borrowing costs and the simpler the transaction in general.

Affordable short-term VAT loans

Some of the UK’s leading bridging specialists offer short-term loans with rates of interest as low as 0.5% per month. All with minimal additional borrowing costs, arrangement fees, and general levies. Just as long as the balance is repaid in accordance with the loan agreement, bridging finance can be uniquely cost-effective.

Along with near-immediate access to the funds required, a key benefit of bridging finance is the elimination of credit checks. If the applicant is able to provide sufficient collateral to cover the loan, there’s no requirement to undergo a credit check or provide proof of income. No deposits, no delays, and no unnecessary complications, ideal for covering VAT costs when time is a factor.

Just be sure to consult with an independent broker before penning your application, which will help ensure you find the best deal from an extensive panel of specialist lenders.

Repayment of bridging finance with another bridging loan

Our client was looking to borrow against an inherited property to repay an existing bridging loan secured on his own property which was arranged to consolidate debt.

The repayment strategy for the initial 12-month bridging loan had failed as the estate agents were unable to sell the property in the intended timeframe, hence the need to repay this loan as it had come to the end of its term and the current lender was needing repayment. Our client also wanted to raise additional funds to pay for medical costs and to repay money owed to family members which had accumulated during the term of the current loan, following a bereavement.

Finance raised on an inherited property

The inherited property was unencumbered and had to be transferred into our clients name as part of the transaction. UK Property Finance were able to arrange a new loan for our client whilst we used our vast industry contacts to keep in constant communication with their existing lender and solicitors to ensure they remained abreast of the situation and knew the client was doing their utmost to arrange repayment of the loan.

On agreement of the new loan the solicitor provided an undertaking to the lenders solicitors confirming that when the new loan was advanced, the inheritance duty was paid and our clients interest became listed on the property deeds as owner. The clients’ solicitor also confirmed that they would ensure the remaining advance was used to repay the existing bridging loan secured on our clients current property and the medical bills accrued.

The exit or repayment of the new bridging loan was still via sale and due to the extended timeframe agreed our client was able to sell his property without further stress and once the sale was complete our client took up residence in the inherited property which was now owned free of any loans.

What’s the Best Way to Buy Land?

Buying land for the first time can be a daunting and challenging process. Even if you’re more than familiar with traditional property procurement, buying land is an entirely different experience. From deciding where to buy land in the first place to finding the perfect land loan for your needs, there’s much to take into account along the way.

As for the ‘best’ way to buy land, the short answer is simple – as strategically as possible. In terms of where you buy the land, why you’re buying it and your chosen land financing option, it’s entirely up to you. But there are nonetheless some universal pointers to consider, which could help you make the right decision.

Examples of which include the following:

  • Your main reason for buying the land

You could be looking to buy a plot of land to sell at a later date for a profit.  Alternatively, you could be considering building your dream home, or even an estate of properties to rent or sell. Your ultimate intentions for the land should be factored into every decision you make from start to finish.

  • The different types of land available

The type of land you buy will determine if and to what extent you can do anything useful with it. So rather than just buying a plot you liked the look of in a high-demand area, it’s worth first considering its usefulness and versatility or otherwise.

  • Funding solutions

Addressing the issue of how to finance land investments, there are myriad options to explore. From specialist land loans to development finance to bridging loans to agricultural loans, it depends on your current financial circumstances and intentions for the land.

  • Compare the market

How much is agricultural land per acre to buy? How long is a piece of string! The answer will vary significantly from one area to the next, in accordance with both demand and the capacity for the land to generate healthy returns. Hence, it can be useful to compare the market and consider a variety of locations where possible.

  • Consider planning permission requirements

Assuming you plan on developing the land you purchase in some way or another, it’s worth factoring in any planning permission requirements you may need. Depending on the type of land you purchase, it could be easy, difficult or impossible to receive formal permission to develop or build on it. Always better to find out before you go ahead and commit to the purchase.

  • Organise a reliable survey

As with any property you intend to purchase, it’s important to have the land meticulously and professionally inspected from top to bottom. From flood risks to boundaries to potential hazards of all shapes and sizes, it’s impossible to evaluate the value and potential of a plot of land with a fleeting glance.

  • Focus on future demand

Rather than considering what the plot of land is worth today, think carefully about its ongoing growth potential. For example, if the area is scheduled to benefit from improved public transport links or the development of an industrial park in the near future, this could have a marked impact on the value of your investment.

  • Secure professional representation

Last but not least, it always pays to have the experts on your side when considering an important investment. So rather than going it alone, secure professional representation from the earliest possible stage from a reputable independent specialist. Even if you know what you’re doing, an additional objective viewpoint could prove invaluable.

Mortgages Brokers vs Bridging Specialists

Comparing mortgage brokers to bridging specialists is a little like comparing apples to oranges. They both exist for a reason and have their own benefits, but they are nonetheless very different entities.

The popularity of bridging finance continues to grow at its fastest-ever pace. Nevertheless, the vast majority of borrowers in need of sizeable sums for property purchases turn instinctively to mortgage brokers. The problem is that the vast majority of mortgage brokers in the UK lack the knowledge and experience to advise on alternative funding solutions.

In fact, it is estimated that less than 20% of mortgage brokers in the UK have no idea what bridging finance is or its intended applications. Let alone the expertise required to advise on bridging financial options.

The traditional mortgage broker

As the name suggests, a traditional mortgage broker is usually an independent adviser for current and prospective mortgage borrowers. They take into account the requirements and preferences of the applicant, consider their available budget, and scour the market for appropriate mortgage deals. Some work exclusively with major High Street banks, while others also consider loans from specialist lenders across the UK.

However, no allowance is typically made for the consideration of alternative funding solutions. Dozens of conventional mortgage and remortgage products may be analysed, evaluated, and presented to the client, but that’s all. If an entirely different funding solution (such as a bridging loan) represented a better option for the client, a typical mortgage broker may be unable to advise on it accordingly.

Bridging specialists

In a similar vein, alternative funding specialists work closely with major high-street names and independent lenders across the UK. They’re also able to offer comprehensive support and objective advice on all aspects of mortgage borrowing.

The difference is that a bridging specialist can also provide access to an extensive range of alternative funding solutions. From traditional bridging loans and development finance to a variety of accessible and flexible secured borrowing options, there’s far more on the table than traditional mortgages alone.

As a result, the borrower stands a much better chance of finding the perfect funding solution to suit their requirements and budget.

Accessible and affordable

The market for mortgages in the UK has traditionally been somewhat restrictive. In a working example, an individual with a poor credit score or no recent proof of income may be counted out of the running, irrespective of their current financial status.

One of the biggest differences with bridging loans (and other alternative funding solutions) is the consideration of all cases by way of individual merit. So even those who may have been turned down by multiple major High Street names could still access the financial support they need with the help of an independent specialist broker.

For more information on the potential advantages of working with an established bridging specialist, contact UK Property Finance today for an obligation-free consultation.

Bridging Loan Offer in 2 Days and Completion in Less Than 7

Having been rejected for a mortgage, our client was now looking for a bridging loan to buy a new residential property before his current one sold. The loan was to be secured on the purchase property only, as it was of enough value to borrow the loan required and because the client’s current first charge lender would not allow a second charge consent on the current residential. The rest of the purchase price was made up of savings.

UK Property Finance has access to all the main premium rate lenders in the market, which also allows us access to many special rates starting at below 0.4%.

“This was no ordinary house”

The client was looking to exit the loan by mortgaging his purchase property. However, the finance was not available at this stage due to the client’s lack of the first full year’s accounts from his new business venture. The mortgage had been declined, leaving him short of time to complete the purchase of his desired property. This was no ordinary house, as was soon revealed; it was once owned by the client’s parents and was where he had spent much of his childhood. The considerable sentimental value to our client spurred the team to find a resolution.

“The dream team quickly assembled into action”

Indeed, due to the time taken before contacting UK Property Finance, the vendor had now threatened to pull out of the sale if completion did not occur within one week. We were told of the urgency during our very first contact with the client and following an initial fact-finding process.

The dream team quickly assembled into action and instantly provided a quotation for the client’s requirements. The client wanted to proceed, so within 2 hours we had obtained an agreement in principle at the most competitive rate in the market. UK Property Finance also negotiated with the lender to allow an automated valuation, which would make the process much quicker. The team immediately created the finance pack and uploaded it to the document collection company, which met the client at 8 p.m. that evening, by upgrading to a premium service. By the time we opened for business at 8 a.m. the next morning, the finance pack had already been scanned and emailed back, so it could be rapidly submitted to the lender.

By liaising closely with the lender, who lost no time in completing the underwriting and automated valuation, this enabled an offer to be received on the same day of submission. The offer also went to the lenders and the client’s solicitors, who had been warned about the urgency of the case. Even with some minor delays, UK Property Finance continually chased this regulated bridging loan to complete within a week of initial client contact. Continued support for our client meant UK Property Finance could arrange a mortgage for the client to repay his bridging loan within 3 months of funding.

UK Property Finance is not just a bridging loan specialist and can offer many different lending solutions. To find out how we can support you, please contact us at 0116 402 7982.

The Myth of Bridging Loans Unveiled

It is fair to say that buying property since 2013 has become more of a sellers’ market. Open houses and block bookings for viewings are the chosen tactics for estate agents on Saturday mornings. If you have been in this scenario recently, you will recall the anguish of telephone tennis between offers being rejected and other interested parties increasing their bids, making the process of securing a property much more difficult. This makes the prospect of investing in property with this much competition slightly terrifying. Time is of the essence when offering an advantage against first-time buyers with no chain. The eager purchasers are at the mercy of their chosen lender to package, offer, and raise funds in a process that can vary between 8 and 12 weeks. Mortgage lenders in most cases are often large organisations, and with the amount of transactions going through, the process can sometimes take time, with the average decision from the underwriters taking 7 working days. Brokers up and down the country have been listening to their clients concerns and have pulled rank to diversify their offerings with a quiet revolution in property finance.

Bridging is a term that surrounds a lot of mystery to most buyers. It is difficult to ignore bridging loans because the number of customers taking up the products has more than doubled. You can put into Google ‘what is a bridging loan?’ but you will still be left none the wiser. This article hopes to debunk the jargon on bridging, adding another string to the bow when competing for property investments.

Firstly, it would be best to address what a bridging loan means. They are short-term loans for larger amounts of money needed quickly. You wouldn’t want a bridging loan for longer than 12 months because they have a higher annual rate of interest than the high street. If speed is what motivates you, then this type of finance can be packaged in as little as 24 hours.

Bridging loans can be used in a variety of scenarios, including:

  • Buying a property without having sold your own.
  • Helping in between pension payments in lump sums.
  • Looking to refurbish a property to sell on for profit.

There are several types of bridging finance to consider because there are so many different uses. Selecting the right loan type can determine interest, loan value, and the security raised.

Understanding the difference between an open and closed bridging loan is essential when selecting the right bridging finance:

  • A closed loan is when a deadline is given with an exact date to repay the loan and the lender knows how you intend to repay; this is known as an exit strategy. The lender will need evidence that you can repay the loan within the time limit. Typically, lower interest rates are available with closed bridging loans in contrast to open loans due to a lower-risk exit strategy.
  • An open-bridging loan, on the other hand, is ideal if you don’t have a clear exit strategy. The loan, like a closed bridge, will still need to be paid back by the deadline but won’t have a clear proposition for repayment. Naturally, open bridging finance is deemed more risky, so to compensate the lender, the interest rates are higher than for a closed bridging loan.

The minimum you can borrow with bridging finance is £10,000 with no maximum limit, but some lenders set their own restraints on how much they are prepared to lend.

Interest rates are not just dependent on the type of loan taken but also the loan-to-value ratio. Loan-to-value (LTV) is the ratio of the amount of the loan to the value of the asset purchased. Most bridging loan specialists will have a calculator on their websites to work out the average cost of interest and fees. This will make shopping around slightly more informative for the savvy borrower. As a guideline, the monthly rates can start at 0.44% and reach 1.5%, but remember that this will ultimately change based on your circumstances and requirements.

Whether it’s a regular mortgage or specialist financing options that suit the current project, the ability to tailor borrowing has never been more versatile. If you’re interested in learning more about the choices readily accessible, please contact our consultants at UK Property Finance.

Regulation of Bridging Loans in the UK

If you’re considering applying for a bridging loan, an understanding of key bridging loan regulations could prove helpful. Bridging loan regulation in the UK isn’t a particularly complex subject but should be factored into the decisions you make when choosing a lender.

The FCA took control of all aspects of bridging loan regulation in the UK as of April 2014. At which time, control of all CCA loans was transferred to the FCA. This resulted in various changes to the prior regime, affecting eligibility for certain borrowers.

What is a regulated bridging loan?

A bridging loan is formally classified as ‘regulated’ when the loan is issued against a property that is currently (or soon to be) occupied by the applicant or a close member of their family.

Both first-charge and second-charge regulated bridging loans are available, which means that the loan can either be the sole loan secured against the property (first charge) or secured ‘behind’ an existing loan on the property, such as a mortgage (second charge).

Regulation of bridging loans: two classifications

There are two primary classifications of FCA-regulated bridging loans available in the UK, which apply to loans provided for different purposes.

The first classification encompasses bridging loans regulated by the Financial Conduct Authority by reference to its MCOB Rules, known as a ‘regulated mortgage contract’. This classification applies to loans secured by way of a first charge over the applicant’s home or the home of a close family member or spouse.

The second classification of FCA-regulated bridging finance applies to loans that are secured by a second charge over the applicant’s home or the home of an immediate family member. This type of loan is regulated by the FCA by reference to its CONC Rules and is known as a ‘consumer credit loan’.

The bridging loans regulated by the FCA must be secured against property owned by the applicant, which they either currently occupy or intend to occupy in the near future. The primary condition of these regulated bridging loans is that the owner (or a close member of their family) occupies at least 40% of the property and is their primary residence.

Hence, the property must be used primarily as a place of residence rather than as a commercial property or business venture.

Accessing the best deals on the market

Here at UK Property Finance, we work exclusively with top-rated lenders from across the UK. We provide access to exclusive deals and discounts on fully regulated bridging loans for all purposes. By carrying out a whole-of-market comparison, we’ll ensure you’re provided with an unbeatable deal to suit your requirements and your budget.

If you have any questions regarding bridging loan regulation in the UK, we’d be delighted to hear from you. Contact a member of the team at UK Property Finance today for an obligation-free consultation.