Understanding second charge bridging finance

Second charge bridging finance is an option which borrowers are finding increasingly welcome, says Tomer Aboody, director at MTF.

An increasing number of people in need of extra cash are turning to second charge bridging finance to purchase investment properties, inject capital into businesses, or make refurbishments in order to prevent disturbing their existing attractive mortgages.

According to Bridging Trends’ data, a quarterly publication conducted and compiled by MTF and a number of the industry’s specialist finance brokers, £86.9m of second charge bridging loans were completed by its contributors in 2016, representing 18% of all bridging loans throughout the year.


This is a significant increase on the year previously, where the contributors completed £67.4m of second charge bridging loans, representing 15.5% of all bridging loans throughout 2015.

Contributors have already completed £41.7m of second charge bridging loans in the first half of this year, demonstrating that demand for second charge lending is set to continue to increase throughout 2017.

In a sustained low-interest rate environment, it now often makes more sense for a borrower to release equity on an investment property by taking out a second charge, rather than the prospect of refinancing away from their current deal.

At MTF, we believe a second charge bridging loan is about empowering borrowers to enable them to take advantage of time-sensitive opportunities that can make or save them money.

As an example, MTF recently helped a client who required £2.5m to redeem an existing second charge that was coming to the end of its term, on her £8.5m home. The client was part way through refurbishing an investment property but the process had been delayed.

She didn’t want to remortgage as she intended to sell the investment property once the refurbishment works were complete and didn’t want to be penalised for early repayment.

In just 12 days, MTF provided a £2.5m second charge bridging loan at 39% LTV.

Interest was retained at 0.92% over 12 months, with no exit fees or early repayment charges. No personal guarantees were required.

Our bridging loan meant the client was able to redeem her existing second charge, giving her time to carry out the works in order to significantly increase the value of her investment property. The client will then sell the investment asset to exit the bridging loan, against a higher value.

Furthermore, the SME sector is largely underfunded. Business owners need more innovative options, tailored to meet their needs and one such source that has become a critical tool to fund the SME community is bridging finance.

For example, MTF was approached by a broker whose clients were looking for £649,000 to purchase their business premises. The clients had been given a good deal by their vendor, but needed to act very quickly.

With only three weeks to complete the purchase, the borrowers opted for a bridging loan as their mortgage provider was unable to complete within the tight timescale.

In just two weeks, MTF provided a £649,000 bridging loan, secured by way of second charge, at 59% LTV, over the clients’ residential property.

By taking out a bridging loan, the clients had the funds to complete the purchase of the premises, where they had operated their business from for over 25 years. A 12-month term gave the clients plenty of time to arrange and secure a business loan with their bank, in turn settling the bridging loan.

A second charge bridging loan can be secured on all property types, including buy-to-let, residential and commercial assets, and typically has a 12-month maturity, unlike a secured loan which is a form of longer-term financing.

At MTF we welcome second charge applications and have recently launched a new 24-month second charge bridging loan product.

After listening to the feedback from our broker partners, we developed this product to meet with the increased demand for more flexible second charge criteria. As with all our products, no proof of income or personal guarantees are required.

Second charge bridging loans will continue to offer significant financial savings for a wide range of borrowers, not just those who may struggle to obtain finance through traditional routes.