First charge and second charge bridging loans

First charge and second charge bridging loans

Bridging loans are categorised by the lender's legal charge position: the order in which lenders are repaid from a sale of the security.

First charge bridging loan. A first charge bridging loan is secured where no other lending exists on the property, or where the bridging lender repays and replaces the existing finance. The lender holds the primary legal charge. First charge loans are lower risk for lenders and may be priced more favourably than second charge facilities.

Second charge bridging loan. A second charge bridging loan sits behind an existing first charge mortgage, secured against the remaining equity. The first charge lender keeps priority and must usually consent. A second charge lets a borrower raise capital without disturbing a first mortgage that is on favourable terms, fixed at a low rate, or subject to early repayment charges. Borrowing is assessed on a combined loan-to-value (CLTV) basis: the first mortgage and the second charge together must fall within the lender's limit. Typical maximum CLTVs are around 75% on residential property, up to 80% on buy-to-let, and around 65% on commercial property, subject to asset type and exit strength. Where a second charge is secured against the borrower's main residence it is regulated by the Financial Conduct Authority (FCA); against buy-to-let or commercial property it is usually unregulated.