15 things you never knew about bridging loans

By Hannah Duncan 31st March 2021

Think you know everything there is to know about bridging loans? Here are fifteen unusual facts that might surprise you!

1. Islamic bridging finance is set to soar

In the past, Muslims have been generally excluded from Western-style loans and mortgages, as many go against the teachings of Islam. However, in recent years, that’s been changing at break-neck speed. Opportunistic banks have found ways to offer bridging payment plans and mortgages without compromising Islamic principles. Watch this space, Islamic mortgages are about to rocket.

2. The industry is worth a whopping £7 billion each year

Experts estimate that the bridging loan industry is worth a staggering £7 billion each year. This mammoth figure has been gradually climbing upwards since the 2008 credit crunch.

3. Most bridging loans are unregulated

It’s estimated that 60+% of bridging loans in the UK are unregulated. This means that they do not fall under the protection of the Financial Conduct Authority.

4. But regulation is coming…

Most of the bridging loan transactions today are unregulated, but that could be about to change. Following the 2014 Mortgage Market Review, bridging lenders offering ‘consumer’ loans must be regulated. Added to this, industry coalition, the Association of Short Term Lenders have developed a set of standards their members must follow. As we look to the future, we see the rise of green mortgages, introduction of Breathing Space Regulations, increased Anti Money Laundering rules, LIBOR transitions and more. Added together, this could mean a lot more bridging loan regulations are heading our way.

5. Bridging loans first started life as a specialised form of mortgage in the 1960s

The 60s was a time of great social change, characterised with a rising awareness of social equality. Perhaps as part of that, interim mortgage loans sprang to life to help more people afford a home. This initial short term property finance later evolved to become the modern-day bridging loan.

6. The modern-day bridging loan was born out of the 2008 Credit Crunch

As typical high street banks tightened their credit in the 2008 recession, demand to borrow money surged. Almost overnight new types of lenders joined the market. These lenders seized the opportunity to provide loans for property developments, refurbishments and breaks in the chain. The new era of bridging loans had arrived.

7. Bridging loan applications tend to spike after a crisis

Whenever credit is difficult to come by in a bank, bridging loans tend to surge in popularity. Case in point, in Q3 2020 bridging loan applications hit a record-breaking £7.6 billion!

8. Traditionally, bridging loans had nine-month terms

Because bridging loans are designed to be short-term, they generally need to be less than one year. While things are changing now as the market becomes more flexible, the old standard was nine months.

9. Bridging loans are not just for property

Since its origins in 2008, the sector has spread into entirely new areas! People today use bridging loans for purchasing shares in businesses or building up their product stocks prior to seasonal orders. One of our clients even made a £100+ million loan on diamonds.

10. The term “bridging loan” is relatively new

The term first became common-place after 2008 – if it were a person it would be a Gen Z. Back in the 1960s, it was simply called “short -term finance” or a “short-term loan”.

11. Other names include interim financing, gap financing, swing loans

Bridging loans have gone through a bit of a re-brand over the past decades, and we’ve seen a swoop of names hit the deck. From gap financing to swing loans, one thing they all tend to have in common is that they are covering over some sort of financial gap.

12. The Association of Short Term Lenders was founded by bridging lenders

After the 2008 crisis, the lending world saw a boost of new market participants. In March, a coalition was formed to organise get organised and bring together some common industry standards. The Association of Short Term Lenders (ASTL) was founded in March 2008 by 19 bridging loan firms, today it has 36 members and 25 service providers. The ASTL’s main purpose is to increase professionalism, sets standards and provides insight to HM Treasury.

13. Alternative and bridging lenders have a bite!

In 2020, alternative and bridging lenders lobbied the government for access to Bounce Back funds. Leaders such as Nick Ogden fought a hard battle to be allowed to provide finance to struggling businesses. They didn’t win the fight, but they certainly stood up to authority!

14. Bridge-tech is disrupting the industry

Fintech (financial technology) has been disrupting finance for some time now and lend-tech is a big part of that. As open banking continues to progress, and the world becomes ever-more digital, we’re likely to see a huge influx in bridging loan technology.

15. Bridging loans are on the increase

An eye-popping 87% of bridging lenders think the turnover of their business will grow in the next six months. Plus, a further 77% expect the turnover of the wider bridging sector to increase too.

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Hannah Duncan

Hannah Duncan is a freelance writer with a passion for finance, sustainable investing and fintech. She loves writing engaging content for industry magazines and investment services, as well as keeping a personal blog at www.hdinvestmentcontent.com