A new recent report carried out by Bridging Trends shows a record first quarter, with bridging lenders funding a record-breaking £278.8m. This number shows a large 68% increase against the previous quarter and a striking 30% growth from the record hit previously in the Q3 of 2022.
The report by Bridging Trends is produced each quarter and is commissioned by specialist lender MT Finance, which aims to offer insights into the bridging industry in terms of rates charged across the sector, average loan amounts, loan purposes and split between regulated and unregulated lending.
The report highlights that the bridging loan transactions were triggered during this time due to growing demand from residential homeowners. The lack of certainty with the constant rising interest rates and lack of risk appetite in the mortgage market seems to have driven the use of bridging products as a way to beat property chains and complete deals in a quick time frame.
When analyzing the numbers, the portion of homeowners that enquiries for bridge finance to prevent chain breaks jumped to 25%, which was an increase of 15% from the last three months of the previous year.
Elsewhere, the report showed that the demand from landlords and those using it for investment purposes in order to purchase properties experienced a significant decline. As the year 2023 began, the figures actually reached a record low of 15%, which was 26% in the last three months of the year 2022.
MT Finance’s report suggests that this decline can be due to adoption of a more cautious approach by to landlords and property investors, waiting for interest rates to stabilise before engaging in new investment property purchases.
During the first quarter of the year, the split between regulated and unregulated was interesting, with regulated bridging demand seeing an increase to 46.2%, compared to 43.8% in the quarter before. This marked its highest share since the first quarter of 2021 when it reached 47.7%.
The Bridging Trends report suggests that this rise in regulated bridging demand can be placed to homeowners seeking to avoid post-mini-Budget disruption while capitalizing on the interest rates and flexibility offered by bridging loans and finance.
The average monthly interest rates charged by lenders for bridging loans stayed at 0.79% during this period. This stability in interest rates reflects the general instability felt by lenders and the mortgage market as a whole in the UK, Scotland and Wales.
However, despite the stable interest rates, the average LTV ratio decreased to 54.7% from 57.9% in the previous quarter. This decline in the loan-to-value ratio can be because in the current uncertain economic climate, lenders have opted for alternate tactics to issuing high LTV products.
Demand for second-charge bridging loans saw a decline, dropping to 11.2% in the first quarter from 12.9% in the previous 3 months.
The report reflects that this fall may be because of an increase in chain breaks and homeowners taking benefits from the softer property market to move, instead of raising funds on their existing properties.
The average completion time for a bridging loan decreased from 66 days to 54 days during this period which is the fastest average completion seen since the first quarter of 2022, which was 53 days on average.
Despite the figures suggesting a reduction in completion time, the average term for a bridging loan remains for a year, providing borrowers with a defined timeframe for repayment and flexibility in managing their financial needs.
Matthew Dilks, from Clever Lending, says that the sustained growth in the use of regulated bridging loans is for the purpose of chain break. Dilks also mentions the increasing number of brokers who are new to the bridging market, using these products and services for support, experience, and even providing advice to their clients.
On top of that, one has seen a notable surge in enquiries for regulated bridging loans from brokers with clients looking to downsize their properties. Brokers are warned to consider client circumstances and to ensure they meet the varying needs of their clients effectively.