When a First Charge is registered with the Land Registry it creates a hold on a property, a legal interest that needs to be repaid before anything can happen. A Second Charge also registers a legal interest in the property but a Second Charge holder has fewer right than a First Charge holder is less secure.
Property Expert Series: Pamela O'Brien from Redbird Conveyancing
- Part 1: Introducing Pam O'Brien from Redbird Conveyancing
- Part 2: What is Conveyancing?
- Part 3: The Difference Between a First and Second Charge
- Part 4: Where will Property Investors be Putting their Money in 2018?
- Part 5: How is Conveyancing Changing?
- Part 6: The Impact of Proptech on Conveyancing Solicitors
- Part 7: Property Investment Advice from a Licensed Conveyancer
- Part 8: What Should an Investor Expect from their Conveyancing Solicitor
Amy: Can you tell me, Pam, what is the difference between a first charge and a second charge and why is it important for investors to differentiate between the two and understand that difference?
Pam: First Charge is simply a piece of paper which we register with the Land Registry and it looks like that. Very exciting. And the legal charge creates a hold on the property, a legal interest in the property that needs to be repaid before anything can happen to the property.
The property can't be sold, it can't be transferred to another person, it can't be inherited. Nothing can happen to that property until you pay that off.
That's a First Charge and it means that nobody except the First Charge holder has a greater right or interest in that property.
Pam: A Second Charge you can get in lots of circumstances. So, let's say you've got some credit card debt, the credit card company comes after you, they get a court order against you or a judgment against you and they register it against the property.
That means that when you sell, the credit card company has to be paid off because have got a court order that they have secured.
But, let's say you decide, 'I want to transfer it between me and my husband'. You can probably do that around the credit card company. You don't necessarily have to pay the credit card company off.
And there are other things you can do with your property. You can grant a lease, for example, on your property without having to pay the credit card company off.
So, a Second Charge has fewer rights than a First Charge and the Second Charge holder can't really do anything to the property without the First Charge holder's consent because the First Charge holder has greater rights.
If you're looking at Second Charges and if you are saying, for example, you are an investor and you want to offer a Second Charge on a property to someone who is going to lend you some money, that is a good way of securing their interest.
They still have to be paid back but they need to understand that they couldn't repossess the property without the First Charge holder's consent. So, it is a lesser form of legal interest in that property.
Amy: Okay, fantastic. Thank you.
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