Bridging loan transactions hit all-time high in 2023

By Bridging Loan Directory 14th February 2024

A record breaking £831 million of bridging loans was transacted by Bridging Trends contributors in 2023, a 16% increase on the previous year (£716.2m).

The year started strong with contributors completing £278.8m of bridging loans in the first quarter of 2023, the highest level of loans transacted in a single quarter.

This was likely due to borrowers turning to bridging finance amid uncertainty in the mainstream mortgage market after 2022’s mini-Budget.

By the second quarter, momentum cooled with £165.7m of loans transacted by contributors as borrowers were hesitant to take on debt due to high inflation and mortgage rates.

However, volume rebounded and remained consistent throughout the second half of the year, with an increase to £191m in Q3 and £195.5m in Q4.

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.

The data for top broker criteria searches is supplied by Knowledge Bank.

In 2023, borrowers primarily utilised the speed and flexibility of the product to save their onward property purchases, as preventing a chain break was the most popular reason for obtaining bridging finance, accounting for 22% of all loans.

This surpassed the previous year’s most popular purpose of investment purchase, which accounted for 20% of loans and decreased from 23% in 2022.

Meanwhile, the demand for bridging loans for auction purchases, regulated refinance, and re-bridges increased compared to the previous year.

Regulated bridging continued to extend its market share in 2023, increasing to 46.3% from 44% in 2022 and 40.8% in 2021, likely influenced by the rising interest rates and product withdrawals from mortgage lenders, particularly in the first half of the year.

The data provided by Knowledge Bank also revealed an increase in demand for regulated bridging loans.

They reported that the top criteria search made by bridging finance brokers in 2023 was for ‘regulated bridging’, followed by ‘minimum loan amount’ and ‘maximum LTV’.

With the Bank of England’s base rate continuing to climb between January and September, it was no surprise that the annual bridging interest rate increased to an average of 0.87% in 2023, compared to 0.73% in 2022 as lenders fought against rising swap rates for much of the year.

This is the highest annual average interest rate recorded since 2015 (0.91%).

Encouragingly, average loan-to-value levels remained static at 57% in 2023, suggesting borrowers are not over-stretching themselves despite rising interest rates.

The split between 1st and 2^nd-charge bridging loans remained relatively consistent in 2023 though demand for second-charge bridging loans continued to dwindle, accounting for an average of 10.9% of total market volume in 2023 – down from 13.7% in 2022 and 14.8% in 2021.

This is a new record low for annual Bridging Trends data and could be due to borrowers looking to purchase properties rather than releasing equity in their current assets.

The average completion time for a bridging loan dropped slightly from 59 days in 2022 to 58 days in 2023. However, this is a significant increase compared to 2021 (52 days), indicating the mounting pressure on the industry due to the growing popularity of bridging loans.

The average term remained at 12 months for the seventh consecutive year.

Dale Jannels, Managing Director at impact Specialist Finance comments:

“It’s no surprise to see an overall increase in bridging volumes in 2023 and it reflects what we have seen, especially the increased use of regulated bridging.

As a business that’s been operating in bridging for decades, we recognise and understand the products’ complexities and have seen almost every kind of customer scenario.

This helps identify potential issues before they arise and helps brokers and their customers use regulated bridging sensibly and with eyes wide open.

I would strongly recommend that brokers seek the help of experts, who contribute to this index, as I don’t see demand for bridging diminishing, but increasing, and, inevitably, with more complexity.”

Matthew Dilks, Bridging & Commercial Specialist at Clever Lending comments:

“These figures come as no surprise and back up the year we’ve had at Clever Lending, which saw the number and variety of bridging cases we handled reach unprecedented levels.

What’s encouraging has been the number of brokers who have used us for bridging for the first time and personally, it has been extremely rewarding to support them in delivering finance to support their customers’ requirements and needs.”

Andre Bartlett, Director at Capital B Property Finance comments:

“I am pleased to see the remarkable growth in the bridging loan market as evidenced by the latest Bridging Trends data.

The record-breaking £831m transacted in 2023 signifies a significant 16% increase from the previous year, demonstrating the increasing reliance on bridging finance within the property sector.

It’s noteworthy how borrowers utilised the speed and flexibility of bridging loans to prevent chain breaks, especially amids market uncertainties.

Additionally, the rise in regulated bridging suggests a shift in borrower preferences influenced by evolving market dynamics, including rising interest rates and product withdrawals from traditional mortgage lenders.

Despite these challenges, it’s encouraging to observe stable average loan-to-value levels.

However, the decline in demand for second-charge bridging loans highlights changing borrower priorities, potentially driven by a preference for property purchases over equity release.

Overall, the data highlights the resilience and adaptability of the bridging finance market.”

Gareth Lewis, Managing Director at MT Finance comments:

“It is encouraging to see that bridging finance’s popularity is growing and that an increasing number of borrowers are unlocking its speed and flexibility.

Brokers have clearly worked hard to educate their clients and that has certainly paid off.

As a sense of stability returns to the mainstream mortgage market, my hope is that borrowers continue to utilise bridging’s versatility for everything from unlocking equity to funding an auction purchase and we move further away from the perception that it is solely a last resort option.”