Second-Charge Commercial Mortgages London
Subordinated commercial debt sitting behind your existing first-charge mortgage, secured against the same property. Keep the legacy interest rate and avoid breaking early repayment charges while raising £150K to £3M. Combined loan-to-value 70 to 75%, interest rates 8.5 to 11.0% pa, 5 to 25 year repayment terms. Limited company structures supported.
Combined LTV
Up to 75%
Rate
8.5 to 11.0% pa
Term
5 to 25 years
Facility
£150K to £3M
What does sitting behind an existing first charge actually mean?
A second-charge commercial mortgage sits behind your existing first-charge facility, secured against the same property. The first-charge lender retains priority on the asset and the second-charge lender takes a subordinated position, meaning that in any default scenario the first charge is repaid in full before the second-charge lender sees anything. You keep the existing facility intact, and its interest rate, while raising additional debt against the same security.
The use case is narrow, and it is disproportionately a London use case. This city holds the highest concentration of asset-rich, cash-tight commercial borrowers in the country, because London property values have moved further since 2015 than anywhere else while trading margins have not. The recurring profile: a first charge on a competitive legacy interest rate of 3.5 to 4.5% drawn between 2019 and 2021, significant early repayment charges to break it, and a need to raise £200K to £3M for working capital, business growth, a partner buy-out or an onward acquisition. Refinancing the whole stack would cost more than the second-charge route, and on a three-year horizon the arithmetic is usually decisive.
Worked example. A £2M owner-occupied London premises carries an £800K first charge at 4.0% with three years left and a 3% ERC. Taking a £600K second charge at 10.0% costs £60,000 a year, so £180,000 across three years, on top of £96,000 of interest on the untouched first charge: £276,000 all in. Refinancing the whole £1.4M at 7.0% costs £294,000 across the same three years, plus £24,000 of ERC: £318,000. The second charge is £42,000 cheaper, and the first charge stays where it is. Change the numbers and the answer flips, which is exactly why it gets modelled rather than assumed.
It is a smaller and more specialist market than first-charge lending. InterBay Commercial, Together and select specialist subordinated desks are the active second-charge commercial lenders across London. Pricing reflects the subordinated risk profile at 8.5 to 11.0% pa, with arrangement fees typically 2 to 3%. Combined loan-to-value across the first and second charge is usually capped at 70 to 75%. Most second-charge commercial lending is taken out by a limited company trading entity or SPV with director personal guarantee, and it is unregulated commercial lending, not a residential mortgage. The first-charge lender has to consent to the second charge being registered, normally through a deed of consent at typically £500 to £2K, and some high-street commercial desks refuse on policy grounds, which closes the route and leaves refinancing the whole stack as the only option. Stamp duty does not apply because there is no transfer of ownership. Repayment runs on a standard amortising basis, or occasionally interest-only with a balloon at year five, structured around the cash-flow profile of the underlying business.
Process: from first-charge consent to subordinated drawdown
1. Combined-LTV review
Current first-charge balance, current property valuation and target combined loan-to-value. Most second charges sit at 70 to 75% combined.
2. First-charge consent check
The existing first-charge lender must consent to the second charge being registered. Some refuse on policy, most allow it with a deed of consent fee.
3. Indicative terms in 48 hours
From two to three specialist subordinated desks, covering interest rate, LTV, term, fees and conditions.
4. Credit pack
Standard commercial credit pack plus the first-charge documentation. Lenders want clarity on the priority position and on any cross-default clauses in the existing first-charge facility.
5. Valuation and intercreditor
RICS Red Book valuation, plus a deed of priority or intercreditor agreement between the first-charge and second-charge lenders. Adds 1 to 2 weeks against a first-charge process.
6. Completion and drawdown
Funds drawn and the first-charge facility left entirely unaffected. 5 to 7 weeks total typical from indicative terms to drawdown.
Profiles where keeping the first charge intact is the right call
- Borrowers holding a competitive legacy first-charge interest rate they cannot afford to break
- Trading-business owners raising working capital against owner-occupied London premises
- Limited company investors funding an onward acquisition without disturbing a portfolio facility
- Operators facing early repayment charges that make full refinancing uneconomic
- Borrowers whose first-charge lender will not advance further but will consent to a second charge
- Asset-rich London borrowers under cashflow pressure who need capital without breaking the facility
- Investors funding partner buy-outs without disturbing existing portfolio lender relationships
Why subordinated commercial debt does more work in London
Second-charge commercial lending is a niche product almost everywhere in the UK and something close to a mainstream one in London, for a reason that comes straight out of the market's shape. London property values have risen further and faster since 2015 than anywhere else in the country, which means a borrower who drew a facility between 2019 and 2021 is now sitting on substantial equity behind a legacy rate they would be foolish to break. At the same time, this is an expensive city to trade in, so those same borrowers are frequently short of working capital. Asset-rich and cash-tight is the standard London commercial profile rather than an unusual one. InterBay Commercial, Together and select specialist subordinated desks are the active second-charge commercial lenders here. The product sees most use on owner-occupier trading premises across west London and the outer boroughs, and on commercial investment assets in central London and north London where the legacy first charge is simply too valuable to disturb. Combined first-plus-second loan-to-value is usually capped at 70 to 75%, and it is the combined figure rather than the second charge alone that lenders test. Where the arithmetic favours a clean break instead, we say so and route the case to commercial remortgage.
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