Equitable Charge Loans
If your first charge lender has refused consent for a second charge, an equitable charge loan might be the solution you need.
An ‘equitable charge’ can be a viable option for borrowers under certain circumstances, with the new borrowing subordinate to the first charge lender.
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What Are Equitable Charge Loans?
Equitable charge loans are a specialised form of borrowing used when a legal second charge cannot be registered due to the first charge lender refusing consent.
This type of loan creates an equitable interest in your property rather than a legal charge.
It’s a flexible option that can provide access to funds, typically ranging from £100,000 to several million pounds, with terms usually between 3 to 24 months.
Unlike a standard second charge mortgage, an equitable charge loan doesn’t involve registering a legal charge at the Land Registry. Instead, it creates a right for the lender to request a legal charge in the future if necessary.
Benefits of Equitable Charge Loans
Equitable charge loans offer several unique advantages:
Access to funds when other options are limited
When your first charge lender won’t allow a second charge, this can be a viable alternative.
No change to existing mortgage
Your current mortgage remains unaffected, potentially saving you time and money.
Flexibility in fund usage
Whether you’re looking to invest, fund a business venture, or cover a large expense, you have the freedom to use the funds as needed.
Potential for larger loans
In some cases, you may be able to borrow more than with a traditional second charge mortgage.
Flexible Borrowing
At Bridging Finance London, we’ve cultivated relationships with a network of trusted lenders and high-net-worth individuals who understand the unique nature of equitable charge loans.
These lenders operate with the utmost discretion and do not require consent from or correspondence with the first charge lender.
This approach allows borrowers to utilise the equity in their property even when a conventional second charge loan isn’t an option.
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Understanding Equitable Charges: A Practical Example
To better grasp how equitable charges work, let’s consider a common scenario:
Imagine you own an investment property with an existing mortgage (the first charge). You’re looking to borrow additional funds and have approached a second loan provider.
The second lender would contact your first lender, explaining your loan application and requesting permission to register a second legal charge on the property.
However, in this case, your first lender refuses to consent to a second legal charge.
This is where an equitable charge becomes valuable.
Instead of a legal charge, the new lender can secure the loan with an equitable charge. This arrangement still allows you to access additional funding, without requiring consent from the main mortgage.
By working with lenders who specialise in equitable charges, Bridging Finance London can help you navigate this situation, providing access to funds even when conventional second charge loans aren’t possible.
Equitable Charges vs Legal Charges: The Main Differences
To fully appreciate the value of equitable charge loans, it’s important to understand how they differ from legal charges:
Rights Conferred to the Lender:
- Legal Charge: Provides the lender with an actual legal interest in the property, including the power of sale if the borrower defaults on the loan.
- Equitable Charge: Doesn’t give the lender an automatic right of sale. Instead, the lender would need to obtain a court order to sell the property if the borrower defaults.
Consent Requirements:
- Legal Charge: Requires the consent of any existing legal charge holders (e.g., your first mortgage lender).
- Equitable Charge: Does not require consent from existing charge holders, making it a more flexible option when obtaining a legal charge isn’t possible.
Land Registry Records:
Despite the differences, both types of charges are recorded at the Land Registry. An equitable charge is added to the property’s ‘Charges Register’ using an RX1 application, ensuring it’s officially documented.
This flexibility makes equitable charges a valuable tool in complex financial situations. As Structured Property Finance Specialists, we excel in arranging these types of loans, helping you access funding even when traditional routes are closed.
Are they easy to get?
They’re not as readily available as conventional financing options, with a limited pool of specialist lenders and wealthy individuals offering these products.
The lending criteria for equitable charge loans tend to be more stringent due to their specialised nature, and the extra lending risk (because there’s no legal charge).
Lenders look for significant equity in the property, a robust exit strategy, and a clear purpose for the funds.
This makes them more suited to experienced property investors, high-net-worth individuals, or those with complex financial situations.
In essence, while equitable charge loans aren’t ‘easy’ to obtain in the conventional sense, they can be a viable and accessible option for the right borrower in the right circumstances, especially with expert guidance.
Restrictions
Most lenders prefer investment properties such as buy to let, holiday let, second homes, HMO, commercial and semi-commercial.
