A Guide to Bridging Finance Part. 3

In Part 1 of our Guide to Bridging Finance we discussed the reasons why a borrower may require a real estate bridging loan and Part 2 looked at the different types of bridging loans available. The final part of our Guide to Bridging Finance series identifies the terms often using in relation to Bridging Finance.

Key terms often used in relation to Bridging Finance:

‘First charge’

Refers to the ranking of the security for the bridging loan. A ‘first charge’ loan refers to the loan being secured by a first mortgage/charge against the security property. A first charge lender holds the senior security position in a loan.

‘Second charge’

Refers to the ranking of security for the bridging loan. A ‘second charge’ loan refers to the loan being secured by a mortgage/charge that ranks behind the first charge lender. That is, the security provided to the lender ranks second. A second charge loan will generally have a higher interest rate payable to the lender than a first charge loan (given that there is more risk associated with the loan for the lender, as it holds a subordinated position).

‘Mezzanine finance’

Is sometimes used as an interchangeable term with bridging finance. However, technically a mezzanine loan in bridging finance terms, refers to a second charge loan. That is, the lender has a mezzanine (or subordinated) security to the first charge lender.