Should you take a first or second charge bridging loan?

First or second charge: what's the difference?

The difference is what happens to your existing mortgage. A first charge replaces it, while a second charge leaves it in place and ranks behind it.

How does a first charge bridging loan work?

The bridge pays off whatever mortgage is already on the property and becomes the only loan secured on it. Because the lender is first in line on a sale, it takes less risk, which is why first charges tend to be cheaper and can lend more.

On Capito's panel, first charge bridging goes up to 80% gross LTV on mostly residential property, and up to 75% on purely commercial property. Gross LTV includes fees and any retained interest, so you receive less than the headline loan.

How does a second charge bridging loan work?

A second charge lender registers its charge behind your existing mortgage, which carries on as normal. You then have two loans secured on one property, and the second lender is repaid only after the first is cleared. The lender looks at total borrowing against the property, and that total divided by the property's value is the combined LTV.

Worked example (illustration only)

Say you own a property worth £1,000,000 with a £400,000 mortgage, and you need funds quickly for a deposit elsewhere. If a second charge lender capped combined LTV at 65%, total borrowing could reach £650,000. That leaves room for a second charge of up to £250,000 gross, before fees and any retained interest come off. Real limits depend on the lender, the property and the exit.

Do you need your first lender's consent for a second charge?

Usually, yes. Many mortgages require the lender's permission before any further charge is registered, and many first lenders protect that position with a restriction on the title at HM Land Registry, which stops a second charge being registered without their consent.

Where the first lender agrees, it may want a deed of priority (sometimes called a deed of postponement). This is an agreement between the lenders that sets out the order they rank in and can cap how much the first lender can claim ahead of the second.

Consent typically takes a few days where it's given, but some first lenders refuse it as standard. That's the main reason a second charge timetable slips, so it's worth asking your first lender early, ideally before you commit to a purchase or completion date. Some bridging lenders will offer a facility on a "consent to follow" basis, where they proceed with the first lender's consent still being obtained.

When does a second charge make sense?

A second charge usually works best when your existing mortgage is worth keeping. That might be because:

• it's on a good rate you'd lose by refinancing
• repaying it early would trigger an early repayment charge
• you need deposit or works money quickly on a property you already own, and the combined LTV leaves enough room

When is a first charge the better choice?

A first charge is often better when the existing loan is expensive, close to its end date, or about to fall due anyway. Replacing it with a single bridge gives you one lender, one set of terms and, usually, a lower cost than layering a second loan on top.

It also suits cases where you need more than the combined LTV cap allows, because a first charge can go up to 80% gross LTV on the panel. And the exit is simpler, since only one loan has to be repaid or refinanced.

What are equitable and third charges?

An equitable charge is a form of security some lenders use on an interim basis, for example while a legal charge is waiting to be registered. It generally gives the lender weaker protection than a registered legal charge, and it can still raise questions under the terms of your existing mortgage, so it isn't a substitute for proper consent. Take independent legal advice before agreeing to one.

A third charge ranks behind both a first and a second charge. A small number of lenders will consider one, but most stop at third charges and many won't go beyond a second.

What about the exit?

With a second charge, both loans have to be dealt with. If you plan to sell, the sale must clear the mortgage and the bridge together; if you plan to refinance, the new lender will normally need to repay both. Exits most often fail because LTV is too high, so review your exit at least three months before the bridge term ends. Our guides to the bridging exit and refinancing a bridging loan cover the options.

Can you get a second charge bridging loan on your own home?

A second charge on a home that you or a close family member lives in, or will live in, is regulated lending. Capito doesn't arrange regulated loans and passes these enquiries to an FCA-authorised firm. Our guide to regulated vs unregulated bridging explains where the line falls.

From the desk

The second charge cases that run smoothly are usually the ones where the borrower raised consent with the first lender at the very start. Where the first lender allows second charges, consent typically comes back within a few days, but some lenders won't consent as standard, so check your mortgage terms before anything else.