Second Charge

A second charge is a legal security interest registered against a property that already has an existing first charge (typically a mortgage or existing business loan). Because the second charge holder is subordinate to the first charge in the event of a default and sale, they carry more risk and typically charge higher interest rates.

Second charge business loans allow businesses to borrow against the equity in a property without redeeming (paying off) the existing first charge. This is useful when the first charge carries a fixed rate or early repayment charges that would make redemption expensive. The borrower effectively uses the remaining equity above the first charge as security for additional borrowing.

For a property worth £500,000 with a £200,000 first charge mortgage and a lender willing to lend to 70% LTV, the maximum second charge (£350,000 - £200,000 first charge = £150,000) would be £150,000. The second charge lender will need consent from the first charge holder in most cases.

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