Somo launches UK’s first capital loss guarantee on second charge loans

UK bridging lender Somo has launched a capital loss guarantee, offering investors protection on up to the first 10 per cent of any loss on second charge property loans.

The Second Charge Limited Capital Loss Guarantee will apply to all loans originated after 1 November 2025, with aggregate coverage capped at £1.2m, the firm said. Loans made before that date will not be covered.

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Somo said the scheme provides “direct, transparent and defined coverage”, unlike more complex credit enhancement mechanisms used elsewhere in the market.

The property lender added that it will also consider a limited number of second charge cases with loan-to-value ratios of up to 75 per cent, in line with market norms.

The firm also highlighted the strong performance of its second charge portfolio. As of April 2025, 580 second charge loans had been repaid, with 100 per cent of capital returned and 99.66 per cent repaid with full advertised interest, delivering an average annual return of 10.33 per cent.

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By comparison, first charge loans recorded 532 repayments, with 100 per cent capital returned, 99.06 per cent repaid with full interest, and an average annual return of 9.36 per cent.

To support the guarantee, Somo will hold a dedicated loss reserve based on the size of its second charge loan book. The reserve will account for both statistical risk and potential market stress scenarios.

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