Regulated Second Charge Bridge: £110,000 to Finish a Half-Built Home
They had a house that would be worth £2m and needed £110,000 to finish it. Their own lender could not help, because a building site does not get a residential valuation. Here is how a regulated second charge bridging loan solved it, and why the sum is not the one most people expect.
Talk to Ashley about your deal
The deal
A couple bought a house in Hertfordshire for £1.45m with a £780,000 first charge from a high street lender. It is their own home, not an investment, and that one fact shapes everything that follows.
They are part way through a substantial refurbishment and extension. The windows are in and paid for. Fixtures and fittings are separately funded. The kitchen goes in next month and they are targeting wind and watertight before the end of the year.
£185,000 of build cost remains. They have £40,000 in cash and a pre-approved £35,000 personal loan. Finished, the house should be worth £2.0m.
Why their own lender could not help
They went back to the high street lender for further borrowing and were declined. Not on affordability, and not on credit. On condition.
The house is a building site. A mainstream valuer will not call it habitable, and a lender that cannot get a residential valuation cannot lend. It really is that simple, and it catches people out constantly, because from the borrower's side nothing has changed except that the work they are paying for has started.
They also did not want to remortgage the whole thing onto bridging rates just to release £110,000. Quite right. Their first charge is a good rate and there were early repayment charges sitting on it. Moving a £780,000 mortgage to raise £110,000 is the expensive way round, which is the whole argument for a second charge bridging loan.
What a second charge bridge actually lends against
This is the part everybody gets wrong, and it is worth slowing down for.
A bridging lender lends against what the property is worth today, not what it will be worth when you have finished. On a second charge refurbishment bridge you are looking at 65% to 75% of open market value, and open market value means the half-built house with no kitchen, not the finished article.
And it is a combined figure. The first charge and the bridge added together, measured against that value. The bridging lender is second in the queue. If it ever went wrong, the high street lender gets paid first, so they lend less and they count everything sitting in front of them.
So the sum is not "£110,000 out of a £2m house". It is:
(£780,000 already owed + whatever the bridge is) ÷ today's value, and that has to come out at 65% to 75%.
Which makes today's valuation the single number the whole deal turns on. Here is what it does to the money:
| Value today | Room at 65% | Net you receive | Room at 75% | Net you receive |
|---|---|---|---|---|
| £1,250,000 | £32,500 | £24,975 | £157,500 | £133,225 |
| £1,350,000 | £97,500 | £81,265 | £232,500 | £198,175 |
| £1,400,000 | £130,000 | £109,410 | £270,000 | £230,650 |
| £1,450,000 | £162,500 | £137,555 | £307,500 | £263,125 |
| £1,500,000 | £195,000 | £165,700 | £345,000 | £295,600 |
Read the 65% column, because that is the one you plan against. You do not build a deal on the assumption that you will find the most generous lender in the market.
They needed £110,000 net. At 65%, the valuation had to hold at roughly £1.4m or better. If a valuer had taken the view that a house with no kitchen is worth £1.25m, every 65% lender would have been gone and the whole thing would have rested on finding a 75% one. At 75% it works even on a pessimistic valuation, and that is the difference between a deal with one route and a deal with two.
The numbers
The valuation held. Taking the full 65%:
| The facility | Amount |
|---|---|
| Gross second charge facility | £162,500 |
| Less facility fee, 2% of gross | £3,250 |
| Less legals, admin, land registry and title insurance | £3,170 |
| Less 12 months retained interest at 0.95% a month | £18,525 |
| Net advance | £137,555 |
| Combined loan to value | 65.0% |
£162,500 gross becomes £137,555 in the account. Around £25,000 of the facility never reaches them. That is not a trick. It is the fees and a year of interest taken out at the start, because a building site produces no income to service a loan from. If you have not come across that before, our piece on gross versus net shows the same thing line by line, and the bridging calculator will net down your own figures.
Why they took more than they needed
This is the bit worth the whole case study.
They needed £110,000 net to finish. So there were two versions of this deal.
Borrow the minimum. £130,681 gross becomes £110,000 net. £40,000 cash plus £35,000 loan plus £110,000 is £185,000, against a £185,000 build. Contingency: nothing. Not a pound.
Take the full 65%. £162,500 gross becomes £137,555 net. £40,000 plus £35,000 plus £137,555 is £212,555, against a £185,000 build. Contingency: £27,555, about 15% of what was left to spend.
The second one costs more in interest. It also means that when the groundworks throw up something nobody priced, or the roof needs more than the quote said, there is money there to deal with it.
A refurbishment running out of money three weeks from the end is how a twelve month bridge becomes an eighteen month bridge, and that costs far more than the extra interest ever would. You only pay for the months you use, so if they finish early the retained interest comes back anyway.
"Take the room while the valuer is there. You cannot ring up six months later and ask for another thirty thousand without paying for a second valuation and a second set of legals, and by then you are asking from a weaker position."
The exit, and the question the lender asked
Anyone who knows me knows I always come back to the exit. On this one it is a mainstream residential refinance, once the house is finished enough for a residential valuer to sign it off.
| Refinance at | Raises | Debt to clear | Result |
|---|---|---|---|
| 60% of £2.0m | £1,200,000 | £942,500 | clears, £257,500 spare |
| 70% of £2.0m | £1,400,000 | £942,500 | clears, £457,500 spare |
| 75% of £2.0m | £1,500,000 | £942,500 | clears, £557,500 spare |
Total debt on completion is 47% of the finished value. That is a comfortable exit by any measure, and it is why this deal was fundable at all.
Then the lender asked the question they always ask. What if the refinance is late?
The couple had bonuses coming. £65,000 early in the year and a further £45,000 later on. £110,000 in total, against a £162,500 gross facility.
So we were straight about it, and you should be too. The bonuses do not repay this bridge. They pay down most of it. They are a contribution and a comfort, not a plan B.
The real plan B is that the refinance happens on time, and the thing that controls that is not the lender. It is whether the house is finished. Which is exactly why the contingency mattered more than the rate did.
Why this was a regulated second charge
It is the home they live in, so this is a regulated bridging loan. That brings the full set of consumer protections, a proper advice process, and a different panel of lenders from the unregulated market. Plenty of bridging lenders do not touch regulated work at all, which narrows the list before you have even started.
It is worth knowing which side of that line you are on before anybody quotes you. Bridging on a buy to let or a project you will never live in is usually unregulated. Bridging on your own home is not.
And before any of the numbers above mattered, there was one question to answer first: will the first charge lender consent to a second charge going on the title? Some are straightforward about it, some are slow, and some are awkward. Policy changes too, so what was true last year is not automatically true now. That is the first call, not the last.
If consent had turned out to be impossible, an equitable charge can sometimes secure a loan without it, though that is a different conversation with different numbers.
The short version
- A house being refurbished is worth what it is worth today, not what it will be worth finished.
- A second charge bridge lends 65% to 75% of that, combined with the mortgage already on it.
- Ask the first charge lender for consent before anything else.
- Take the contingency while the valuer is there.
- Know the difference between an exit and a contribution.
If you are mid-build and your lender has gone quiet on you, that is a ten minute conversation rather than a form. Ring 0330 133 4442 and tell me where the works have got to.
Client details and figures in this case study have been changed to protect confidentiality. The structure of the deal, the loan to values and the mechanics are as it was arranged.
The figures relate to the particular circumstances and lending terms available at the time of this transaction. Rates, fees, maximum loan to values, loan sizes and lender criteria can change, and the terms available to another borrower may be different.
This case study is provided for general information only and shouldn't be treated as an indication that similar terms or timescales will be available in another case.
Bridging finance is secured lending. Failure to repay a secured loan may result in the lender taking enforcement action against the property or any other security provided. Think carefully before securing other debts against your home.
Got a deal like this on your desk?
Second charge, regulated, half finished, or all three. Tell me where it has got to and I will tell you straight whether it is placeable.