First vs. Second Charge Bridging Loans: What’s the Difference?
When it comes to fast, short-term funding for property deals, bridging loans are a popular choice. But not all bridging loans are the same.
One key distinction is whether the loan is a first-charge or a second-charge bridging loan—and understanding the difference can help you make the right decision for your project.
What is a Bridging Loan?
Bridging loans are short-term loans typically used by property investors and homebuyers who need fast access to funds. They’re secured against property and designed to “bridge the gap” between a purchase and longer-term finance or the sale of an existing asset.
These loans are commonly used to:
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Buy a property at auction
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Prevent a property chain from collapsing
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Fund renovations before refinancing
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Secure a new property before an existing one is sold
What is a First-Charge Bridging Loan?
A first-charge bridging loan is used when there’s no existing mortgage or loan secured against the property. This makes the bridging lender the primary creditor. If the borrower defaults, this lender is the first to be repaid from the proceeds of a property sale.
These loans are often more straightforward to arrange and typically come with lower interest rates due to the reduced risk to the lender.
What is a Second-Charge Bridging Loan?
A second-charge bridging loan is taken out in addition to an existing mortgage. In this case, the original lender holds the first charge, and the bridging loan provider takes the second charge.
Because the second lender is repaid only after the first has been settled, second-charge loans carry more risk for the lender, which often makes them more expensive in terms of interest and fees. They also require permission from the first-charge lender before going ahead.
Key Differences at a Glance
| Feature | First-Charge Bridging Loan | Second-Charge Bridging Loan |
|---|---|---|
| Existing Mortgage on Property | No | Yes |
| Risk Level for Lender | Lower | Higher |
| Interest Rates | Generally lower | Usually higher |
| Lender Permission Needed | No | Yes – from the first-charge lender |
| Typical Use Case | Unencumbered properties | Properties with existing mortgages |
Which one is right for you?
Choosing between a first- or second-charge bridging loan depends on your current financial arrangements and the property in question.
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If the property is owned outright, a first-charge loan is likely the best route.
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If there’s already a mortgage in place, and you want to access extra funds without refinancing, a second-charge loan could be the solution—provided you have a solid exit strategy and can cover the higher costs.
At Cotterell & Cotterell Commercial Finance, we help homeowners, developers and businesses secure tailored funding solutions for commercial property and development projects. If you’re wondering if a Bridging Loan is the right for you, get in touch with our team today and we’ll take you through your options.
