When you secure a bridging loan, your property is subject to a ‘charge’ by the lender. This means that if you’re unable to repay the loan, they’ll recover their funds from the sale of your property.
In cases where there are no pre-existing loans tied to the property (such as when you own it outright), this is known as a ‘first charge’ bridging loan. Consequently, if you were unable to meet the loan repayment and your property was sold to settle the debt, the bridging loan lender would be the first in line to receive their repayment.
On the other hand, if there are one or more existing loans already secured against the property, like a mortgage, it becomes a ‘second charge’ bridging loan. In this scenario, should you struggle to repay the bridging loan and your property is sold to cover the debt, the bridging loan lender would receive their repayment only after your mortgage provider has received theirs.
Typically, second charge loans come with higher costs, reflecting the increased risk for the second charge lender in recovering their funds if you face difficulties with repayments. Furthermore, obtaining a second charge loan would necessitate consent from the first charge lender, which is usually your mortgage provider.