Second Charge
Read below, or view as a PDF here.
One of the options that Mission Housing offers to churches and Christian organisations is for a Second Charge on a property.
What is a Second Charge?
In this instance, the church or organisation purchases the property using its own reserves as a deposit and potentially getting a bank loan or mortgage. So, the church or organisation would be the owner of the property and hold the title. This property will be used to house one of their employees to help with the work of the church or organisation.
Any mortgage lender would take a first charge over the property for the value of the lending they have provided. It would be the church or organisations responsibility to pay the costs involved with the mortgage both for setting it up and any monthly repayment and interest due.
Where there would still be a funding gap, Mission Housing would work with the church to be able to raise the additional funds by way of a number of small loans made to Mission Housing. The lenders would mostly be from the contacts of the church or organisation. These smaller loans would be rolled up into one lump sum that is forwarded to the church or organisation to be used to complete on the purchase. Mission Housing would then take a second charge over the property to cover the lending it had provided. This charge would be recorded on the Title Deed of the property.
What is involved?
There would be a monthly interest charge on the loan that is payable to Mission Housing. A little like the mortgage interest charge. It would be sufficient to handle any interest payments on loans, the Mission Housing legal fees (recoverable over a period of time) and Mission Housing's administration of the loans that will include communication with lenders.
There will be a legal agreement signed between Mission Housing and the church or organisation, stating what the terms of this rolled up loan are.
The small loans can be either:
a. Fixed rate loans – e.g. the lender provides £5,000 for 10 years with interest being charged. At the end of the term, they receive their £5,000 back but, in the meantime, they will receive the interest on their loan on an annual basis.
b. Equity loans – e.g. the loan is interest free but is linked to the value of the property. So, if the property is purchased for £500,000 and the loan is for £50,000 the loan is the equivalent of 10% of the property value. At the end of the term, say 10 years, the property is revalued, and the lender receives back 10% of the property value at the time. It should be noted that property values can go down as well as up, so if that is the case the lender may receive back less, than they originally contributed.
Background checks and regular communications with the lenders will all be managed by Mission Housing and it is possible for lenders to remain anonymous to the church or organisation, if that is their wish.
Any first charge lender would need to be aware that there is going to be a second charge on the title deed and give their permission.
Repayment of loans
When a small loan is due to be repaid, it is the responsibility of the church or organisation to either:
a. Repay the capital to Mission Housing, to pay the lender, or
b. Find someone else to take over that loan amount, so the original lender can receive their capital back.
About six months before any loan is due to be repaid, Mission Housing would contact the lender to find out if they do want it repaid or if they are prepared to extend the loan for a further period. The lender is also offered the opportunity to gift the loan to the church or organisation, if they wish.
A fresh loan agreement will be entered into if the church or organisation repay the loan, to reflect the fact that there is a smaller sum outstanding and less interest due monthly.
The aim will be for the church or organisation to eventually buy out all the lenders and own the property outright as their asset and be able to continue the work in the area and house their workers.
If you have any further questions or would like to pursue this option, please contact our CEO, Bruce or Judi. They would be happy to help.