Second charge borrowing to expand a portfolio

THE QUESTION

I have a property worth £170K with a mortgage of £105K.  How much would I be able to borrow on bridging finance for another property?

THE ANSWER

The first important thing to consider is what the second charge bridging market looks like.

Not all bridgers lend if you cannot offer them a first charge.  You can’t do that, because your mortgage lender already has a first charge and that’s pretty much at the limit for the available borrowing on your property at its current value.  

There are bridgers that do second charge lending and they fall into two groups:

1. Those that will only do a second charge if you also give them a property they can take a first charge on - usually the property you intend to buy.
2. Those who will do a second charge regardless.

With bridgers that do offer a second charge loan, the lending is usually capped at 65% of the property value.   The maths for your property look like this:

£170,000 x 65% = £110,500. Now deduct your £105,000 mortgage = £5,500

So you have £5,500 of usable equity after your mortgage is factored in.  In reality though, you don’t have any useable equity because the valuation and legal fees to set up a bridging loan would reduce what you ended up with to something so small it just wouldn’t be worth bothering with.  This applies even if you get a bridging loan as in option 1 and give the bridger a first charge on a new property.

This is probably not what you want to hear, but it’s back to the drawing board, because you don’t have sufficient equity in the property to use for bridging purposes.

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