Bridging lending increases to £201.8m as preventing a chain break drives demand

By Bridging Loan Directory 13th August 2024

Bridging Trends contributors reported £201.8 million in bridging loans in Q2 2024, a 2.9% increase on Q1’s £196.2 million. This is the highest Q2 figure since Bridging Trends records began in 2015.

The majority of bridging loans taken out in Q2 (23%) were used to prevent a chain break – rising from 19% in Q1 – as borrowers faced continued conveyancing delays in the mainstream mortgage market.

Demand for auction finance saw the biggest rise, jumping from 9% in Q1 to 14% in Q2. This is likely due to an increased number of savvy buyers taking advantage of undervalue sales as the property market remained relatively flat.

The rise in bridging loans to prevent a chain break or fund an auction purchase may have contributed to the average processing time falling from 58 days in Q1 to 52 in Q2.

Purchasing an investment asset was the second most popular use of a bridging loan but fell from 21% in Q1 to 18% in Q2 against a backdrop of uncertainty caused by sustained high interest rates combined with an early general election.

Regardless of this, the number of unregulated bridging loans rose from 49% in Q1 to 54.2% in Q2 as landlords and investors adapted to the new normal.

Data provided by Knowledge Bank showed that despite the decrease in regulated bridging, it remained the top criteria search made by UK bridging finance brokers in Q2 and highlights how powerful a tool it can be for borrowers.

After a strong quarter in Q1, the proportion of second charge bridging loans plummeted from 21.3% to 11.6% in Q2 as borrowers prioritised purchasing a property instead of releasing equity.

This fall in second charges could be why the average monthly interest rate fell marginally from 0.89% in Q1 to 0.86% in Q2.

The average loan-to-value also dropped fractionally, from 60% in Q1 to 59.3% in Q2. Elsewhere, the average term remained at 12 months for the 11^th consecutive quarter.

Bridging Trends combines bridging loan completions from several specialist finance packagers operating within the UK bridging market: AFIG, Brightstar Financial, Capital B, Clever Lending, Clifton Private Finance, Complete FS, Enness, Impact Specialist Finance, LDNfinance, Optimum Commercial, Sirius Finance and UK Property Finance.

William Lloyd-Hayward, Group COO & MD at Sirius Finance comments:

“The latest Bridging Trends research confirms the continued growth and resilience in this sector of the market, but also the diverse ways in which bridging can be used.

We often talk about short-term property finance as a tool for investors who may want to embark on a refurbishment project or buy a property at auction, for example, but the most popular use of bridging this quarter was amongst homebuyers who wanted to save their purchase in a chain break.

This is an everyday occurrence that could impact any homebuyer and any broker, and so those brokers who are not familiar with the bridging market should consider partnering with an expert in this area to ensure they are well placed to best serve their clients.”

Andre Bartlett, Director at Capital B Property Finance comments:

“In Q2, I’ve noticed a significant uptick in the bridging loan market.

This growth seems to be fuelled by the urgent need to prevent chain breaks in property transactions, especially as the traditional mortgage market faces delays.

I’ve seen more people turning to auction finance than ever before, taking advantage of undervalued properties, which is an exciting trend.

The faster processing times for these loans make them an attractive option for those needing quick access to funds.

Even amid high-interest rates and economic uncertainties, the market is adapting well, with a notable shift towards unregulated loans and a slight decrease in interest rates and loan-to-value ratios.

This flexibility and responsiveness highlight the crucial role bridging finance plays in navigating today’s challenging economic landscape.”

Gareth Lewis, Managing Director at MT Finance comments:

“With the property market relatively stagnant in Q2, specialist lending continued to offer a flexible approach to underwriting that further increased bridging’s attractiveness.

This can be seen in the fact that this quarter’s contributor gross lending was a record high and is testament to the sector’s versatility.

I am encouraged to see the uptick in unregulated lending and am hopeful that this marks a turning point for landlords and investors who have been hit so hard in recent years.

That completion time dropped by six days from 58 to 52 indicates how hard everyone is working to get these deals over the line.”