If you’re familiar with bridging loans you may wonder if you can have more than one at the same time.
The answer is yes, you can. But there’s more to it than that.
Bridging loans are short term finance used to cover a temporary funding gap, often in property transactions. They’re popular with property investors, developers and even homeowners in certain situations.
But what happens when one bridging loan isn’t enough?
Let’s look into having multiple bridging loans, including second and third charge loans, who might need them and what you need to know if you’re considering this option.
The Basics of Having More Than One Bridging Loan
You can have more than one bridging loan at the same time.
In fact it’s not unusual for property investors or developers to have several bridging loans running at the same time. This might be when you’re working on multiple projects or properties at the same time.
For example, let’s say you’re a property developer in South London.
You have a heavy refurbishment project underway, funded by a refurbishment bridging loan, when a great opportunity comes up to buy a commercial property in Surrey. You don’t have the cash available so you might consider a new commercial bridging loan to grab this new opportunity.
One option to be aware of is cross collateralisation. This is when a lender uses multiple properties as security for one loan or multiple loans.
Most loans cap out at around 80% LTV. If you need more than this you’ll need to bring some additional security to the table. We have access to lenders that can provide one loan, secured against two, or more properties.
This strategy is the basis for 100% bridging loans, where you don’t need to have your own deposit.
Second and Third Charge Bridging Loans
When we talk about multiple bridging loans it’s not just about having separate loans on different properties. You can also have second or even third charge bridging loans.
A first charge bridging loan is the main loan on a property.
If you already have a mortgage or bridging loan on a property, any additional borrowing would be a second charge loan. If you then take out another loan on the same property that would be a third charge loan.
For example, let’s say you have a property worth £500,000 with a first charge bridging loan of £250,000.
You might be able to get a second charge bridging loan for an additional £100,000, using the remaining equity in the property as security.
Second and third charge loans are useful in these situations:
- When you need extra funds but don’t want to refinance your existing loan
- If you want to keep the interest rate on your first charge loan
- When you need to raise funds quickly and a second charge loan is quicker to arrange than refinancing
However they do come with higher interest rates as the lender takes on more risk. They’re also usually for smaller amounts than first charge loans.
Reasons for Having Multiple Bridging Loans
There are several occasions when you might need more than one bridging loan:
- Expanding your property portfolio: You might use separate bridging loans to buy multiple properties in a short space of time.
- Managing multiple development projects: Different loans could fund different stages or aspects of multiple live projects.
- Business cash flow: Bridging loans can provide fast access to capital for business opportunities or to cover short term cash flow gaps.
- Auction purchases: If you’re buying multiple properties at auction you might need separate bridging loans for each as auction purchases often require quick completion.
- Raising extra funds on an existing property: You might get a second charge bridging loan to fund renovations or to release equity for other investments.
Let’s take the London property market as an example.
An investor might spot two properties in up and coming areas like Peckham and Walthamstow. Rather than choosing between them they might use two bridging loans to buy both properties quickly, with plans to renovate and sell or rent them out.
The deposits could also be funded from a second charge bridge secured on another investment property.
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Assessing Your Borrowing Capacity
When you have multiple bridging loans lenders will look at your overall financial situation.
They’ll want to know about all your assets and liabilities, not just the ones related to the properties you’re borrowing against.
Your credit history will also come into play. While bridging lenders are more flexible than mortgage providers, a good credit history will help you more when you’re looking for multiple loans.
Lenders will also look at how you’re managing any existing bridging loans. If you have a history of making repayments on time and successfully exiting previous bridging loans that will work in your favour.
For second and third charge loans lenders will be looking at the amount of equity in the property after existing loans have been deducted.
Related reading: What is a Non-Status Bridging Loan?
Exit Strategies
Your exit strategy – how you plan to repay the loan – is a vital part of any bridging loan application.
When you’re talking about having numerous loans it’s even more important.
Lenders will want to see clear and viable exit plans for each loan. They’ll be looking at whether your plans are realistic and achievable within the loan term.
It’s worth noting that using the same exit strategy for multiple loans can be risky. For example if you’re planning to sell several properties to repay different loans you’re putting all your eggs in one basket.
What if the property market dips?
It’s important to consider regional property market trends when planning your exit strategies. The market in central London for example is very different from the market in Maidstone or Bristol.
Security and Loan-to-Value (LTV)
When it comes to security for bridging loans things can get a bit complicated.
Each loan needs to be secured against a specific property but some lenders may also look at your entire property portfolio when making decisions.
LTV ratios for second or third bridging loans may be lower than for your first. You might get 75-80% LTV on your first bridging loan but subsequent loans may be capped at 65% or 70%.
For second and third charge loans lenders will calculate the LTV based on the total of all loans secured against the property. For example if you have a first charge loan at 60% LTV and want a second charge loan the total LTV including both loans should not exceed 75-80%.
Pros and Cons
Pros
Having multiple loans can give you more financial flexibility. You can act quickly on opportunities as they arise without having to wait for one project to complete before starting another.
This can be especially useful for portfolio diversification. By using different loans for different types of properties or in different locations you can spread your risk.
Second and third charge loans offer additional benefits:
- They allow you to access more funds without disturbing existing financing arrangements.
- They can be quicker to arrange than refinancing an existing loan.
- They enable you to keep the favourable terms on your first charge loan and still access more capital.
Risks
Of course with more opportunity comes more risk. Taking multiple bridging loans means more overall debt and more interest to pay. You need to be sure the returns from your projects will outweigh the costs.
Managing lots of loans can be more complicated. You’ll have different repayment schedules to keep track of and potentially different lenders to deal with.
There’s also the risk of over extension.
It’s easy to get carried away with opportunities but remember each loan needs to be repaid. If one project goes wrong it could have a domino effect on your other loans.
In summary, yes you can have more than one bridging loan including second and third charge loans on the same property.
It can be a really useful way to grow your property portfolio or manage multiple projects. But it’s not without risk.
Remember bridging finance is a specialist area. What works for one investor may not work for another.
If you’re considering multiple bridging loans and want to talk through your options further why not get in touch with us?
