What is a charge on a property?
When a lender provides a loan secured against property, they register a legal charge against the property at the Land Registry. This charge gives the lender the right to recover their money from the sale proceeds if the borrower defaults on the loan. The charge remains on the property until the loan is repaid in full, at which point the lender removes it.
Charges are ranked in priority order. The first lender to register a charge holds the first charge position, and any subsequent lenders hold second, third, or further charge positions. This priority order determines who gets paid first if the property is sold to settle debts.
First charge bridging loans
A first charge bridging loan means the bridging lender holds the primary charge over the property. This occurs when either there is no existing mortgage on the property (the bridging lender is the only secured creditor) or when the bridging loan is used to purchase a property outright without an existing mortgage in place.
First charge bridging loans generally attract lower interest rates than second charge loans because the lender is in the strongest position. If the borrower defaults, the first charge holder is paid first from any sale proceeds, reducing the lender's risk. Most straightforward bridging loans — auction purchases, chain breaks, development projects on unencumbered properties — are arranged as first charge.
Advantages of first charge
- Lower interest rates — the reduced risk to the lender translates into better pricing for the borrower
- Higher LTV available — lenders are typically willing to lend a higher proportion of the property value on a first charge basis
- Simpler process — there is no need to obtain consent from an existing lender, which can simplify and speed up the transaction
- More lender choice — almost all bridging lenders offer first charge loans, giving you a wider market to choose from
Second charge bridging loans
A second charge bridging loan sits behind an existing mortgage or other first charge on the property. This is common when a homeowner wants to raise additional short-term finance against their property without disturbing their existing mortgage. The bridging lender registers a second charge, meaning they would be paid after the first charge holder if the property were sold.
Second charge bridging loans are typically more expensive than first charge loans because the lender faces higher risk. If the property is sold and the proceeds are insufficient to cover both charges, the second charge holder may not recover their full loan amount. To compensate for this risk, lenders charge higher interest rates and may lend at lower LTV ratios when combined with the first charge.
When second charge bridging is used
The most common scenario for a second charge bridging loan is when a homeowner has an existing mortgage with favourable terms that they do not want to lose — perhaps a low fixed rate or a tracker rate that would not be available if they remortgaged. Taking a second charge bridging loan allows them to raise funds without affecting their existing mortgage.
Second charge bridging is also used when the existing mortgage has early repayment charges that would make repaying it and taking a new first charge bridging loan uneconomical. By keeping the existing mortgage in place and adding a second charge bridge, the borrower avoids triggering these penalties.
Another common use is in buy-before-sell scenarios where the homeowner's existing property has a mortgage. The bridging loan is taken as a second charge behind the existing mortgage, providing funds for the new purchase. When the existing property sells, both the mortgage and the bridging loan are repaid from the proceeds.
Consent from the first charge holder
One of the practical challenges of second charge bridging is that the first charge holder (usually a mortgage lender) must consent to a second charge being registered on the property. Some mortgage lenders are cooperative and provide consent relatively quickly, while others are slower or may refuse altogether. This consent process can add time to the transaction and, in some cases, may prevent the deal from proceeding.
Your broker will check whether your existing mortgage lender is known to provide consent for second charges and can advise on the likely timeline. Some bridging lenders have established processes for obtaining consent from major mortgage providers, which can speed things up.
Combined LTV and how it is calculated
When a second charge bridging loan is in place, lenders look at the combined loan-to-value ratio — the total of all charges against the property as a percentage of its value. For example, if your property is worth £500,000, you have a first charge mortgage of £200,000, and you want a second charge bridging loan of £100,000, the combined LTV is 60% (£300,000 / £500,000).
Most bridging lenders will accept a combined LTV of up to 70% to 75% on second charge transactions, though some may go higher in specific circumstances. The lower the combined LTV, the better the interest rate you can expect.
First or second charge: which is right for you?
The choice between first and second charge is often determined by your circumstances rather than being a free choice. If the property has no existing mortgage, the bridging loan will naturally be a first charge. If there is an existing mortgage and you want to keep it in place, a second charge is the appropriate structure.
In some cases, it may be more cost-effective to repay the existing mortgage and take a first charge bridging loan, particularly if the existing mortgage has no early repayment charges and the first charge bridging rate is significantly lower than the second charge rate. Your broker can model both options and advise on the most cost-effective approach.
Expert guidance on charge positions
The charge position of a bridging loan has a direct impact on your costs, timeline, and available lender options. A specialist bridging loan broker will assess your situation and recommend the optimal structure. Nesto matches you with experienced bridging finance brokers who can navigate the complexities of charge positions and ensure you get the best deal for your circumstances. The service is free.