A "second charge" on a property refers to a subsequent legal claim or mortgage secured against a property that already has an existing first charge mortgage. Here's a breakdown of what a second charge entails:

Secondary Legal Claim:
When a property owner already has a first charge mortgage in place, they may choose to take out additional borrowing secured against the property. This results in a second charge being registered against the property with the Land Registry. The second chargeholder holds a legal claim over the property's value, subordinate to the first chargeholder.

Priority in Repayment:
In the event of default by the borrower and subsequent sale of the property to repay debts, the proceeds from the sale are distributed in order of priority. The first chargeholder has priority in receiving repayment and is entitled to be repaid in full before the second chargeholder receives any proceeds. This means that the second chargeholder's claim is subordinate to that of the first chargeholder.

Additional Borrowing:
Second charges are commonly used by homeowners to access additional funds without disturbing their existing mortgage arrangements. Borrowers may use second charge mortgages for various purposes, such as home improvements, debt consolidation, or financing other ventures.

Risk and Interest Rates:
Since second charge lenders assume a higher level of risk compared to first charge lenders, second charge mortgages typically come with higher interest rates and may have less favourable terms. This reflects the increased risk associated with being subordinate to the first chargeholder in the event of default.

Cooperation with First Charge Lender:
Before proceeding with a second charge mortgage, borrowers are typically required to obtain consent from their first charge lender. This ensures that the first charge lender acknowledges and consents to the creation of a subordinate charge on the property.

Property Sale and Transfer: Similar to first charge mortgages, the existence of a second charge does not prevent the sale of the property. However, the outstanding debt secured by the second charge must be repaid from the proceeds of the sale after the first charge lender has been repaid in full.

In summary, a second charge on a property allows homeowners to access additional borrowing secured against their property, providing a flexible financing option while maintaining their existing mortgage arrangements. However, second charge mortgages come with increased risk and typically carry higher interest rates compared to first charge mortgages.

Bridging loans are frequently used by property investors or buyers seeking to purchase properties at auction. Auction purchases often require quick access to funds, as winning bidders typically have a short timeframe to complete the purchase.

Pre-Auction preparation:

Research - Conduct thorough research on the properties listed for auction, including viewing properties, obtaining surveys, valuations and renovation costs.

Contingency - To mitigate valuation risks, buyers should conduct thorough due diligence and have contingency plans in place. This may include arranging for a professional survey or valuation before the auction and negotiating with the seller for flexibility in case of value changes.

Obtaining indicative terms - Before attending the auction, buyers typically approach lenders or financial institutions to obtain indicative terms or quotes for bridging loans based on their estimated purchase price. These indicative terms provide buyers with an initial understanding of the potential loan amount, interest rates, fees, and repayment terms that they may qualify for.

Auction day

Setting a maximum budget - Typically, buyers obtain indicative terms or quotes before the auction, based on an estimated purchase price. However, this estimate often differs from the actual purchase price. If there are significant changes in property values between the auction date and completion, buyers may need to reassess their financing options. Bridging loans are often based on the property's current value, so fluctuations in property values could affect the loan amount or terms. Prudent buyers will set a maximum cap at the highest amount they are willing to pay for the property, considering both the purchase price and the associated financing costs.

Bidding - On the day of the auction, interested buyers attend the auction and bid on the properties they wish to purchase. Successful bidders are required to pay a deposit immediately upon winning the bid, typically around 10% of the purchase price and they are legally obligated to complete the purchase within a specified timeframe, typically 28 days, however, this can be negotiated depending on the auction house.

Financing

Application: The application process is straightforward and usually requires minimal information since auction finance/bridging loans are considered asset-based financing, focusing more on the asset than the individual. Lenders typically request basic information such as personal details, address history, purchase price/value, intended use of funds, property details, and the borrower's exit strategy. It's typically a fast process, enabling buyers to complete within the specified timeframe, bridging the gap until longer-term financing such as a mortgage is arranged.

Conveyancing

Legal process - The buyer's solicitor or conveyancer initiates the legal process, including property searches, title checks, and preparing the necessary documentation for the bridging loan. In order to speed up the process solicitors will instruct expedited searches as standard searches can take up to 4-5 weeks depending on the local authority or they will provide a quote for indemnity insurance, insuring you against any unforseen issues.

Completion - Upon completion of the legal process and receipt of the bridging loan funds, the property purchase is finalised, and ownership of the property is transferred to the buyer.

In summary, bridging loans play a crucial role in financing auction purchases, providing buyers with the short-term funding needed to secure properties quickly. However, buyers need to be aware of the tight timeframes, potential valuation risks, and the importance of thorough due diligence and contingency planning to ensure a successful transaction.

There are a number of different ways that Buy to Lets can be purchased, these include the following:

• Layered Buy-To-Lets - Group structures with holding companies
• Limited Companies (SPV’s - Special Purpose Vehicles)
• Limited Liability Partnerships
• Personal Name
• Trading Companies
• Trusts
• Other

An equitable charge, sometimes also referred to as a comfort charge, is a legal concept in property law that grants a creditor a security interest in a property without the need for a formal legal charge or mortgage deed. Here's an explanation of an equitable charge in the same format:

Legal Concept:
An equitable charge is a type of security interest in a property that arises through equitable principles rather than through the formalities of a legal charge or mortgage deed. It provides the creditor with a right to claim repayment from the property's value in the event of default by the debtor.

Creation:
Equitable charges can arise through various means, such as through an agreement between the debtor and creditor, an intention to create a charge, or through the conduct of the parties involved. Unlike legal charges, equitable charges do not require formal registration with the Land Registry or execution of a mortgage deed.

Security Interest:
Similar to legal charges, equitable charges provide the creditor with a security interest in the property, allowing them to claim repayment of a debt owed by the debtor. While equitable charges may lack the formalities of legal charges, they are still enforceable through equitable principles in court.

Priority and Enforcement:
In the event of default by the debtor, the creditor holding an equitable charge may seek enforcement of their security interest in the property through equitable remedies, such as an order for sale or appointment of a receiver. However, the priority of an equitable charge in relation to other interests in the property may be subject to the specific circumstances of the case and equitable principles.

Flexibility and Informality:
Equitable charges offer a degree of flexibility and informality compared to legal charges, as they do not require the same formalities or registration procedures. This can make them a suitable option in situations where parties wish to establish a security interest quickly or where the formalities of a legal charge are not practical or necessary.

Considerations and Risks:
While equitable charges provide a means for creditors to secure their interests in a property, they may also carry certain risks and uncertainties, particularly regarding priority in relation to other creditors or competing interests in the property. It's essential for both debtors and creditors to seek legal advice to understand their rights and obligations concerning equitable charges.

What is an SPV?

A Special Purpose Vehicle (SPV) is a legal entity set up for a specific, often limited, purpose. In the context of property investment, an SPV is typically a limited company formed solely for the purpose of holding and managing property assets.

Advantages

Tax Efficiency: One of the primary motivations for using an SPV is tax efficiency. Limited companies pay corporation tax on their profits, which is typically lower than personal income tax rates depending on your tax band. Additionally, mortgage interest relief changes have made SPVs more attractive for landlords as mortgage interest is fully tax-deductible for limited companies, whereas it is not in your personal name.

Disclosure: We are not tax consultants therefore, please do not consider this advice, each individual's circumstances are different therefore, we recommend you speak with a tax consultant.

Limited Liability: SPVs offer limited liability protection to their owners (shareholders). This means that in the event of financial difficulties or legal issues, the liability of shareholders is limited to the amount of capital they have invested in the company.

Disclosure: We are not able to offer legal advice therefore, please do not consider this advice, each individual's circumstances are different therefore, we recommend you speak with a legal advisor.

Shareholders: An increasingly prevalent practice involves parents, including their children as shareholders in limited companies. Tax professionals typically recommend this strategy, and is often employed to mitigate future tax liabilities, such as inheritance tax (IHT). Parents are able to gift the shares to their children over time, eventually transferring ownership.

SPVs must comply with all relevant laws and regulations governing property investment, landlord responsibilities, and company administration.It's essential to seek professional advice from accountants, solicitors, and tax advisors to ensure compliance with all legal and regulatory requirements.

Bridging loans can be used for a number of different purposes which usually include the following:

• Auction purchase
• Barn conversions
• Basement dig outs
• Below market value (BMV) purchases
• Cash flow issues
• Chain break
• Change of use class
• EPC upgrades
• Extensions / Loft conversions
• Legal / Transaction issues
• Multi unit to single unit
• Quick equity release
• Refurbishment
• Repossessions
• Single to multi-unit
• Uninhabitable properties
• Other

The primary difference between regulated and unregulated mortgages for bridging loans lies in the level of regulatory oversight and the intended purpose of the loan. Regulated bridging loans are subject to strict regulatory requirements and are primarily intended for consumers purchasing residential properties, while unregulated bridging loans are commonly used for commercial purposes and offer greater flexibility but carry higher risks.

Here is a breakdown:

Regulated Bridging Loans

Regulatory Oversight:
Regulated bridging loans are subject to oversight and regulation by the Financial Conduct Authority (FCA). These loans are typically secured against residential properties that are intended for occupation by the borrower or their family members.

Consumer Protection:
The regulatory framework governing regulated bridging loans is designed to provide consumer protection, ensuring that borrowers are treated fairly and provided with clear information about the terms and conditions of the loan. Lenders offering regulated bridging loans must adhere to stringent regulatory requirements, including affordability assessments and responsible lending practices.

Scope of Regulation:
Regulated bridging loans are primarily intended for consumers who require short-term financing for personal or residential purposes, such as purchasing a new home before selling their existing property or funding home renovations. The regulatory framework aims to safeguard the interests of consumers in these transactions.

Key Features:
Regulated bridging loans typically have lower loan-to-value (LTV) ratios and interest rates compared to unregulated loans. Additionally, lenders offering regulated bridging loans may require more comprehensive documentation and conduct thorough affordability assessments to ensure that borrowers can afford the repayments and exit the loan.

Unregulated Bridging Loans

Limited Regulatory Oversight:
Unregulated bridging loans are not subject to the same level of regulatory oversight as regulated loans. These loans are typically secured against commercial properties or residential properties that are not intended for occupation by the borrower or their family members.

Commercial Purpose:
Unregulated bridging loans are commonly used for commercial purposes, such as property investment, development projects, or business expansion. Borrowers may use these loans to finance acquisitions, refurbishments, or to bridge temporary cash flow gaps in their business operations.

Greater Flexibility:
Unregulated bridging loans offer greater flexibility in terms of loan structure, interest rates, and LTV ratios compared to regulated loans. Lenders offering unregulated loans may be more willing to accommodate borrowers with unique financing needs or complex property transactions.

Risk Profile: Due to the absence of regulatory oversight, unregulated bridging loans may carry higher risks for borrowers. These loans typically involve higher LTV ratios and interest rates, reflecting the increased risk for lenders. Borrowers should carefully assess their financial situation and consider the potential risks before taking out an unregulated bridging loan.

There are a number of different types of valuations when assessing an asset, in most cases where the asset is a property that is defined as a residential or buy-to-let most lenders will use the market valuation and then the 180-Day as an alternative. Whereas for other commercial or industrial type of assets they will use either a 180-Day valuation or one of the others as opposed to a market valuation.

The different types of valuations are as follows:  

Market Valuation

• Definition - A market valuation determines the current market value of a property based on its condition, location, demand, and comparable sales or rental data.
• Purpose - It provides an estimate of the property's worth in the current market conditions, typically used for sales, purchases, refinancing, and financial reporting.
• Process - Qualified valuers assess the property, gather relevant market data, analyse comparable properties, and apply valuation methods to determine its market value.

180-Day Valuation

• Definition - A 180-day valuation, also known as a forced sale valuation, assesses the property's value assuming it needs to be sold within a relatively short time frame, typically 180 days.
• Purpose - It aims to provide a conservative estimate of the property's value under the assumption of a forced sale situation, such as in cases of distress or urgency.
• Process - Valuers may apply a discount to the property's market value to account for the expedited sale requirement and potential market conditions during a forced sale scenario.

90-Day Valuation

• Definition - Similar to a 180-day valuation, a 90-day valuation assesses the property's value under the assumption of a shorter time frame for sale, typically 90 days.
• Purpose - It serves the same purpose as a 180-day valuation but with an even shorter timeframe, providing an even more conservative estimate of the property's value.
• Process - Valuers apply a more significant discount to the property's market value to reflect the urgency of the sale requirement within a 90-day period.

Valuations Based on Vacant Possession

• Definition - Valuations based on vacant possession assess the property's value assuming it is vacant and available for immediate occupancy or use.
• Purpose - They provide an estimate of the property's value without considering any existing leases or tenancies, typically used for sales, purchases, or redevelopment purposes.
• Process - Valuers consider factors such as the property's condition, location, development potential, and comparable sales data to determine its value without any occupancy or income considerations.

Method Valuation (Business Assessment)

• Definition - Method valuation involves assessing the value of a business or property-based on its income-generating potential or the value of its underlying assets.
• Purpose - It focuses on evaluating the business itself, including its revenue, profitability, assets, liabilities, and market position, to determine its overall value.
• Process - Valuers may use various methods, such as the income approach, asset-based approach, or market approach, to assess the business's value and its potential for future earnings or growth.

Bricks and Mortar Valuation

• Definition - A bricks and mortar valuation focuses on assessing the physical aspects of a property, including its structure, land, and improvements.
• Purpose - It provides an estimate of the property's value based on its tangible components, typically used for sales, purchases, insurance, and financial reporting.
• Process - Valuers evaluate the property's physical condition, land value, building features, comparable sales data, and replacement cost to determine its bricks and mortar value.

When considering the purchase of a property without a recent valuation report, it's wise to engage a surveyor to conduct one. This ensures clarity on the property's true value, empowering you to make well-informed decisions. Otherwise, proceeding without a valuation may lead to negotiations, document gathering, and lender assessments, only to face potential rejection at the valuation stage due to a down valuation.