Property finance can be tricky but understanding how bridging loans are secured puts you in a better position when it comes to arranging finance.
Whether you’re an experienced investor or new to bridging loans let’s take a look at how different charge types affect your borrowing.
What is a Legal Charge in Bridging Finance?
A legal charge represents the lender’s security interest in your property when you take out a bridging loan.
It is a legally binding and formal agreement that gives the lender certain rights over your property until you’ve fully repaid the loan. This security is registered with the Land Registry, creating an official record of the lender’s interest.
While this might sound similar to a standard mortgage, bridging loan charges offer a lot more flexibility.
Unlike traditional mortgages, which only use first charges, bridging finance can employ various security structures to match different property projects and investor needs.
For example, if you’re buying a property at auction, you might use a straightforward first charge.
But if you’re working with a portfolio of properties, you could use a combination of different charges across multiple assets. This flexibility helps you access finance in situations where traditional mortgage lenders might not be able to help.
The security structure also affects your loan terms.
Properties with clean titles securing first charges typically attract lower interest rates. More complex security arrangements, like second charges or blended security structures, usually mean higher rates but offer greater flexibility.
When you’re exploring bridging finance options, understanding these different security structures helps you:
- Access better interest rates
- Complete transactions more quickly
- Structure deals that work for complex projects
- Keep existing financing arrangements in place
- Maximise your borrowing potential across multiple properties
Your Flexible Friend
While the vast majority of loans are set up using first and second charges, bridging lenders are open to using other methods.
First Charge Bridging Loans
First charge loans have first position – they’re first in line to get paid back if the property needs to be sold to repay the debt. This makes them attractive to lenders (lower risk) which means better interest rates for borrowers.
These work well for standard and auction purchases.
For example if you’re buying a £400,000 property at auction you’ll need to complete within 28 days. A first charge bridging loan could provide up to 75% of the purchase price with competitive rates as you’re offering clear unencumbered security.
Second Charge Bridging Loans
When you already have a mortgage or loan secured against your property a second charge bridging loan allows you to borrow more funds without disturbing your existing arrangements.
Example: You own a property worth £600,000 with a £200,000 Halifax mortgage.
You’ve spotted an opportunity to buy an investment property but need £150,000 quickly. A second charge bridging loan could release that equity in just a few days, while keeping your existing mortgage in place. The interest rates are higher than an equivalent first charge, as the lender takes second position behind your main mortgage.
Related reading: 5 Smart Ways to Use Second Charge Bridging Loans
Equitable Charges
An equitable charge takes a different approach to property security.
Rather than registering a formal legal charge with the Land Registry, it creates a binding agreement between you and the lender based on property law principles.
This type of security proves particularly useful when standard legal charges aren’t practical – for instance, when existing lenders have refused consent for a second charge, or when you need funding faster than a legal charge registration allows.
While not registered at the Land Registry in the same way as a traditional charge, an equitable charge still gives the lender rights over your property. It essentially acts as a promise that you’ll grant them a full legal charge in the future if needed.
This arrangement offers more flexibility than standard charges while still providing security for the lender. They are rarely used against your main residence.
Comfort Charges
Private banks and specialist lenders use comfort charges with high net worth clients.
They’re more flexible than standard charges and work well for complex situations involving international assets or multiple properties.
A lender may offer a loan based on a first charge, but also takes an equitable charge against an additional existing property. This provides the same benefits as a blended charge.
Blended Charges
Property portfolios need flexible financing solutions.
Blended charges combine different charge types across multiple properties to optimise your borrowing structure.
For instance, you might have a first charge on one property, a second charge on another, and perhaps a comfort charge on a third. This flexibility lets you streamline your borrowing while keeping existing finance arrangements in place where beneficial.
It’s particularly useful in scenarios that are highly geared, providing lenders with additional security.
Cross Charges
A cross-charge links multiple properties together as security for a single loan.
Each property provides mutual security for the others via a first legal charge. This works well when you need to borrow against several properties but want to treat them as one security package.
For example, if you own three properties worth £500,000 each, a cross-charge would allow all three to secure a single bridging loan, usually offering better terms than three separate loans.
Making Practical Decisions
Theoretically, your choice of charge structure should match your situation and goals.
What generally happens is that circumstances (and lenders) dictate what options are available to you.
A developer with multiple projects might use a blended charge structure to get flexibility across their portfolio. A simple first charge might be best for a straightforward auction purchase.
If your main mortgage lender refuses consent for a second charge this then forces you down a different path, possibly to use an equitable charge.
The legal process varies by charge type.
Standard charges take 2-3 weeks and involve solicitors, valuations and Land Registry searches. Equitable charges can complete faster but will usually convert to full legal charges later.
Your choices are influenced by what is available, how long it takes and at what cost.
FAQ
Yes. There are no restrictions. As long as the lender is happy with the security, LTV and exit plan you can have multiple loans.
Read more: Can You Have More Than One Bridging Loan?
There’s no requirement for you to have an existing mortgage before applying for bridging finance. In fact, not having a mortgage is better for the lender.
In these situations they will be able to take a first charge over the property, reducing their lending risk.
Your existing mortgage terms remain unchanged, but mortgage lenders will require notification and need to give their permission (consent).
No, comfort charges aren’t registered at the Land Registry. They’re private agreements between lender and borrower, which is why they’re typically only offered to established clients with strong financial profiles.
Our lenders require a minimum property value of £200,000 for first charge bridging loans. Higher value properties (£500,000+) often secure better rates due to lower risk profiles.
Standard residential properties have most options. Non-standard construction, mixed-use, and commercial properties might restrict charge types or increase rates. Listed buildings often require specialist lenders.
Yes, second charge bridging loans allow equity release without disturbing your existing mortgage, avoiding early repayment charges. This often proves cheaper than remortgaging during a fixed term.
No. Lenders prefer utilising a first legal charge as this provides them with the greatest protection.
First charges are certainly the most popular but a good percentage of loans use alternative charges that are subordinate to the first charge.
Blended charges work best with portfolios worth £1m+, offering flexibility to optimise borrowing across multiple properties. They can reduce overall costs despite higher arrangement fees.
No, high street banks typically offer only first charges. Specialist lenders offer wider options. Private banks offer bespoke arrangements and can provide comfort charges to existing clients.
Related reading: Do high street banks still offer bridging loans?
In theory, yes.
If you already have a first charge main mortgage and a second charge loan in place, it would be possible for a third lender to obtain a third legal charge.
