2nd charge bridging loans secured against customers main residence or residential investment property is one of bridging’s best kept secrets and is often very underused.
The second charge sits 2nd in priority to the first charge mortgage on a residential property and the amounts raised are typically at a lower LTV than that of the first charge due to the perceived increase in risk.
The uses of a second charge bridging loan, like their first charge brothers are endless. Typically though they are used by individuals on their main residence for investment into their business where they need to create liquidity quickly and often cannot get an extension to their mortgage in the timeframes allowed.
The investment bridge:
Masthaven recently completed a second charge bridge to a client who needed to invest money into his furniture business. He was a buyer and seller of Indian wooden furniture and, through contacts in the far east, found himself a supplier of Indian Rosewood furniture. Like many deals, the more he bought, the cheaper he got the goods at, and he wanted to buy large quantities of stock for the growing UK market.
The trouble was, the supplier was playing hard ball, and although he had used him before many times, the Indian supplier was having a cash flow problem himself and want a cash payment up front for this large quantity of furniture. Not wanting to lose “the bargain of a lifetime”, our client sought a second charge bridging loan on his main residence to purchase the goods, with the exit route being the profit from the sale of the furniture.
Our client took a 9 month facility, choosing to have the interest deducted from the advance. The furniture transaction was completed smoothly, he sold the furniture in a very short timeframe and actually paid the bridging loan back within 6 months, and of course Masthaven refunded the unused interest back to him.
The 100% bridge:
Many property investors use bridging finance for auction purchases because it is quick. On the day of auction, the winning bidder usually puts 10% down on the day and has another 28 days to find the other 90% of the purchase price. Where bridging can come into play is where the auction purchase is unmortgageable. This maybe due to the property being a repossession and not in the best of conditions with a high street mortgage company looking to put 100% retention on it because of the state of the property.
How bridging has worked for Masthaven in this instance is that we will lend a certain LTV on the subject property dependent on what condition it is in, and then raise the shortfall, and in some circumstances the refurbishment costs as well, as a second charge on the clients main residence. This enables the client to effectively obtain 100% of purchase price on the purchase property and get refurbishment costs without using any of his own liquid funds.
Bridging finance is all about what the deal costs. Is it worth it, what would you do without it and can you still obtain reasonable profit when using it.
Clients of Masthaven have used short term lending secured as a second charge on residential property for over 30 years for a wide variety of projects. When used correctly, and all costs of the deal are known, it can often be a valuable way of creating short term liquidity out of an illiquid asset.