Commercial Mortgages Broker UK Commercial Mortgage Glossary Reference edition, MMXXVI

Charge structures and security

Second charge

A subordinated security ranking behind an existing first charge on the same property. Used for top-up capital raises where the borrower wants to keep an in-place first-charge mortgage.

Second charge is a legal mortgage that ranks behind an existing first charge against the same property. On UK commercial mortgages second charges show up most often when a borrower needs additional capital but does not want to disturb an existing low-rate first-charge mortgage by refinancing it.

When a second charge makes sense

The common case. A borrower holds an existing first-charge commercial mortgage with two to three years left at a fixed rate of 4.5%, against a property now worth 1.5 million with 800,000 of senior debt against it. They need 200,000 of additional capital. Two routes:

  • Refinance the whole 1 million onto a new first-charge mortgage at current market rates (6.0 to 7.5%). The new blended cost on the whole 1 million is substantially higher because of the rate move on the existing 800,000.
  • Take a second charge of 200,000 at a higher rate (8.0 to 11.0% on a UK commercial second charge), leaving the cheap first charge undisturbed.

If the borrower expects to clear the second charge inside two to three years (a property sale, a business event, a planned refinance when the first-charge fix ends), the second charge is usually cheaper in absolute interest pounds than refinancing the whole stack.

Mechanics: deed of priority

Most second-charge commercial mortgage lenders require a deed of priority with the first-charge lender. This document confirms the ranking, sets out information-sharing obligations between the two lenders, and gives the second-charge lender contractual visibility on default or enforcement.

Some first-charge lenders refuse to sign deeds of priority. This is the single most common reason a second-charge commercial mortgage application stalls. Get first-charge consent in principle before progressing valuation.

Typical UK pricing

  • Second-charge commercial mortgage: 8.0 to 11.0% per annum, term 1 to 5 years.
  • Commercial bridging secured by second charge: 0.85 to 1.20% per month, term 6 to 24 months.

See also

Related entries

  • First charge

    The senior security a lender holds against a UK property. Ranks ahead of every other charge in a recovery and is the default position for a senior commercial mortgage.

  • Deed of priority

    Three-way agreement between first-charge lender, second-charge lender and borrower, recording the ranking and information rights between the two lenders.

  • Personal guarantee

    Personal contractual undertaking by a company director to pay a corporate debt if the company defaults. Standard on UK commercial mortgages to limited-company borrowers.

  • Commercial bridging

    Short-term commercial mortgage typically used to acquire, refurbish or refinance commercial property pending a longer-term exit. Priced monthly, term 1 to 24 months.