Bridging loan transactions hit record high in Q3


bridging trends

According to the latest Bridging Trends figures, £214.7 million in bridging loans was transacted by contributors during the third quarter of 2022.

This was the third consecutive quarterly increase and a 20 per cent rise on Q2 (£178.4m), making it the highest contributor lending amount since Bridging Trends launched in 2015.

Preventing a chain break became the most popular use of a bridging loan in Q3 at 22 per cent of total transactions, up from 21 per cent in Q2.

Purchasing an investment property – previously the most popular use of bridging finance for the five previous quarters – dropped by a third, from 24 to 16 per cent. This is an all-time low and could be due to investors exercising caution amid an unpredictable economic climate.

Meanwhile, bridging loans for business purposes nearly doubled, soaring from 6 per cent in Q2 to 11 per cent in Q3. Auction finance also saw a jump in demand, rising from 5 per cent in Q2 to 8 per cent in Q3.

The average monthly interest rate increased for the first time this year to 0.73 per cent in Q3, up from the record low reported in the previous quarter (0.69 per cent) as the cost of borrowing increased across the financial services industry.

The average loan-to-value level also increased in Q3 – to 59.6 per cent, up from 56.2 per cent in Q2.

Regulated bridging remained in high demand, taking 45.2 per cent of market share, up from 43.3 per cent in Q2. This is the highest percentage in regulated bridging transactions since Q1 2021.

Pressure on industry professionals continued into Q3 as demand soared – highlighted by the average completion time increasing to 60 days in Q3, from 57 days in the previous quarter.

According to data supplied by Knowledge Bank, the top criteria search by bridging finance brokers in Q3 was ‘expatriates’. ‘Family gifted deposit’ came in second, followed by ‘flats – not new build’.

Sam O’Neill, Head of Bridging, Clifton Private Finance, comments:

“The total gross lending figure will be an interesting benchmark for the next quarter given the current uncertainty of the market.

With uncertainty comes opportunity, and we are already seeing investors looking to capitalise on under market value transactions caused by panic-selling vendors.

I anticipate investment purchases to increase in the next few months. I would be interested to see the re-bridging figure in the next quarter’s statistics.

Current bridging loans nearing their term’s end are subject to more stringent criteria on mortgages and an uncertain buying/selling market.

Will more lenders who don’t currently consider re-bridging see this as an opportunity? Or a necessity to keep pace with other lenders and the demands of the market?”

Stephen Watts, Bridging & Development Finance Specialist, Brightstar, comments:

“Following the base rate rises we’ve seen throughout this year and mortgage interest rates increasing across the industry, it’s no surprise that chain-break bridging is the biggest use of funds for the quarter.

Borrowers that have had mortgage products withdrawn on them with little or no notice or have lost their sale due to their buyers no longer fitting mortgage affordability criteria, would then turn to short-term funding solutions to ensure their purchase can still go through as planned.

It will be interesting to see how this impacts on next quarter’s data.”

Gareth Lewis, Commercial Director, MT Finance, comments:

“Considering the volumes we have seen in Q3, bridging finance clearly continues to be a useful tool for homeowners and investors alike.

What has been interesting is the drop-off in bridging being utilised for investment purchases, which is likely due to buyers taking stock of the current market.

While it’s too early for us to really feel the impact of September’s mini-budget, I expect this will be more visible in Q4.

As predicted in Q2, interest rates have started to slowly rise to 0.73 per cent but it is worth noting they are virtually on a par with Q3 in 2021 (0.72 per cent).

I would not be surprised if interest rates continue to rise, and investors remain cautious.”