1st Charge Bridging Loans

Bridging loans are a flexible form of finance that can be put to many uses; in this article we discuss the application of 1st charge bridging loans and finance

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In the fast moving world of finance, there are many different types of product that may be used to provide a source of funding. One of the most flexible and adaptable of these is bridging finance, a form of finance which is commonly used to enable businesses and individuals to swiftly seize opportunities. Because bridging finance offers a quick solution for a wide variety of different applications it’s often put to use within the property development sector, where it provides a valuable method of securing property without the need for a mortgage. Likewise, bridging loans are also often found within the commercial sector, as businesses take advantage of the ability to quickly gain capital for expansion.

As a highly flexible form of finance bridging loans come in many different flavours, and there are many different formats of loan available within this sector. In this article, we’ll discuss the most common form of securitisation for a bridging loan, a “first charge” which is used to provide collateral for the loan itself. As with any financial product, there is a cost associated with bridging finance, and though it is in many situations a powerful tool anyone considering this form of loan should consult their broker to ensure this is the right product for them.

Securing a Bridging Loan

The nature of a bridging loan is somewhat different from many mainstream financial products, and there are certain basic attributes which all bridging loans have. In general, a bridging loan can be defined as a high-value short term loan that is secured against an asset; individual loans may vary greatly, but all are designed to meet short term needs for large amounts of funding.

The type of collateral which is used to secure the loan can vary from lender to lender, and almost anything may be used to secure a loan. The most common type of asset that’s used as collateral is property; bridging finance is widely used within the property development sector, and as a result, the majority of bridging loans are secured on property. Businesses may often use their existing assets such as heavy machinery, premises or equipment as collateral, and there are several lenders who specialise in commercial finance. In addition, high net worth individuals who wish to secure a bridging loan may use personal assets such as fine wines, sports cars, boats and private property as security, as there are multiple specialist lenders who accept these forms of collateral.

One form of collateral which is rarely used is the borrower’s own home. Lending products for domestic properties are regulated by the Financial Conduct Authority, while bridging loans themselves are not. This means that any lender wishing to take residential property as security must receive FCA certification in order to do so, and many bridging providers do not go down this route (though there are some who do offer regulated home loans). However, loans for Buy-to-Let property do not require FCA certification, so landlords are still able to use bridging finance to secure property.

Before a loan is granted, the lender will carefully examine the assets which are to be used as security in order to establish their true value. The asset must be sufficiently valuable to give the lender a reasonable chance of recouping their investment should the borrower fail to repay, so this stage of the lending process is vitally important.

1st Charge Bridging Loans

In the event that the borrower should fail to repay their loan at the specified date, the lender has the option to repossess and sell the assets which were used as security. If the assets which have been securitised are owned outright by the borrower, then they are said to have a “first charge” on the asset. This means that they have the right to reclaim their money from the property before anyone else, although they may not be the sole contributor to the loan; if several different lenders have been involved in a purchase, they will need to co-operate to reach an agreement.

Because a first charge gives a lender a reasonable chance of reclaiming their loan, they are by the far most preferred option for most lenders. In fact, many bridging lenders won’t offer any other form of security, and only the minority of lenders offer second charge loans at all.

How Does a First Charge Bridging Loan Work?

As mentioned previously, a first charge bridging loan may be secured on nearly anything, depending on the specific lender. Most commonly, these are used by property developers, so we’ll use a property development loan as an example. If a developer needs a loan to purchase a property or plot of land, they will submit an application to their lender for the necessary funds. The lender will then evaluate the property to determine if it’s worth what the borrower is paying for it and whether the lender will be able to recoup their loan if the borrower fails to repay. All being well, the lender will then supply a loan, with the understanding that if it is not repaid at the end of the term the property may be repossessed and sold to make up the deficit.

It’s worth noting that the loan must be repaid in full to avoid the lender taking possession. If even a small portion of the loan is left outstanding, the lender has the option of reclaiming and selling the property in order to make their money back, which can be disastrous for a developer who’s poured time and money into a project. In situations like this, the borrower will typically take out a second bridging loan or agree to extend the original loan rather than forfeit their property.

A full understanding of what a 1st charge bridging loan entails and what it can be used for is vital for anyone considering this form of finance. The flexibility and adaptable terms of many bridging loans make them an attractive product, but borrowers should always be conscious of the potential consequences of defaulting on a secured loan.

Common Uses Of Bridging Finance

  • Overview

    Bridging loans are short-term financial solutions which are typically found in real estate and a common use is to purchase a property before a mortgage can be put in place.

  • 1st Charge Bridging Loans

    Bridging loans are a flexible form of finance that can be put to many uses; in this article we discuss the application of 1st charge bridging loans and finance

  • 2nd Charge Bridging Loans

    Bridging loans are a highly flexible form of finance, and we discuss why the ability to secure a 2nd charge on a single asset can be invaluable for borrowers

  • Bridging Refinance

    The flexibility and speed of bridging finance makes it ideally-suited to refinancing existing loan products, and helps real estate owners maximise earnings

  • Buying Before Selling

    Buying before selling enables homeowners to break free of their property chains, and can often be achieved with the help of bridging finance.

  • Chain Breaking Finance

    Breaking free of the property chain is crucial for many buyers, and bridging finance is often an ideal way to jump-start a property purchase

  • Discounted Purchase Finance

    Bridging loans can be used to enable the purchase of property at a discounted price, where speed and flexibility makes them an ideal choice for property developers

  • Divorce Finance

    Though it is never pretty, divorce is sometimes simply a fact of life. Bridging finance helps divorces resolve quickly and smoothly with the minimum disruption.

  • Fast Property Purchase

    Completing a property purchase quickly can be highly valuable to many buyers, and bridging loans can offer the ideal solution for a quick purchase

  • Freehold & Lease Extension Bridging

    Purchasing a lease extension or freehold to maintain property’s value is often the right choice for owners, and bridging loans enable fast leasehold extensions

  • High Value Property Bridging

    High value property is a highly competitive sector of the UK real estate market, and requires specialist bridging lenders to provide bespoke financial solutions

  • Hotel Finance

    Bridging loans are an excellent form of finance well-suited to the needs of hotels and hoteliers, and flexible funding solutions can be sought for many requirements

  • Inheritance Tax

    The UK Inheritance Tax is a significant bill for an estate’s executors. Meeting this quickly and easily is a task that bridging finance is ideally suited for.

  • Non-Status Bridging Loans

    Non-status bridging loans enable investors to develop their portfolios without the restrictions of affordability assessments, and are a powerful form of lending

  • Personal Bridging Loans

    Personal bridging loans are one of the most flexible financial products there are, and bridging lenders are able to meet the varying needs of their clients.

  • Property Downsizing

    Downsizing can be a smart move for many property owners, and a stable form of finance such as a bridging loan is needed to provide flexibility and security

  • Quick Purchase Bridging Finance

    Moving quickly can often be make-or-break for a deal, and it’s important that professionals are able to access fast-moving sources of finance.

  • Regulated Bridging

    High value property is a highly competitive sector of the UK real estate market, and requires specialist bridging lenders to provide bespoke financial solutions

  • VAT Bridging Finance

    VAT bills add a hefty charge on to property purchases, and developers must use VAT bridging loans in order to minimise their impact on a project’s profitability

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