Over 60% of bridging figures expect market growth this year

According to the inaugural Interpath and Bridging & Development Lenders Association’s (BDLA’s) Bridging Market Survey, which surveyed around 50 figures from across the industry, only 8% said they expected annual origination volumes to fall and 30% said that there would be no significant change.

Approximately 92% of respondents said institutional funding would stay at current levels or increase over the next year.

Around three-quarters said they expected the cost of origination to stay the same in the next year, with 17% saying they thought it would grow.

Almost 47% said they expected competition to grow and 62% said they expected the average monthly interest rate on loans to fall.

Two-thirds said that the average loan term and loan to value (LTV) will stay the same, and just over half said that the average loan size would stay the same.

Over half said that there had been an increasing time lag in the past year with completing loans, with around 49% saying they expect no significant change in the coming year.

Independent brokers best channel for origination

Regarding distribution, around 53% said that independent brokers were the most important primary channel for originations.

This was followed by 32% pointing to master brokers, and originating director customers was ranked by 36% as one of their two top origination channels.

Around 40% put third-party non-broker referrals at fourth place, and aggregator websites were ranked the least important channel overall by around 55% of participants.

Refurbishment top bridging use

On loan use, refurbishment was the most popular reason for taking out a bridging loan, cited as the top reason by 45% and in the second spot for 36% of participants.

Re-bridge and auction purchase were voted by 19% and 23% respectively as the second-most likely use of a bridging loan.

Downsizing was voted on by the smallest contingent of people, and a quarter pointed to mortgage delays.

“Overall, there seems to be mixed sentiment on the most popular reasons to obtain a bridging loan, suggesting that bridging loans offer a wide variety of uses, and that the market for bridging lenders remains strong and diverse,” the report stated.

The top two reasons for the exit of a bridging loan was refinance onto a buy to let (BTL), cited by 45% of respondents, and sale of property, cited by 42%.

More than half said that the average monthly interest rate for loans in the past 12 months was between 1% and 1.25%, with nearly a tenth suggesting loans priced above 1.25%.

The average LTV was 65-70%, followed by 60-65%.

The average loan size has also grown from around £300,000-400,000 to more than £600,000. The average term was estimated at around 9-12 months by over half of respondents.

When asked about challenges ahead, increased competition was by far the most common challenge selected, ranked by 60% of respondents, followed by a decline in property sales volumes and time to sell.

Declining property values was the third-most common challenge feared by those in the market.

Next 12-18 months will be ‘pivotal’ for bridging market

Nick Parkhouse, managing director and head of financial services deal advisory at Interpath, said that the coming 12-18 months will be “pivotal for the bridging finance market”.

He continued: “The industry expects growth, more institutional funding, and a fall in interest rates, but there are still some real drags on activity, not least in the delays caused by legal processes on the time to execute a transaction. While credit quality will increase, the results show us that there is still concern over defaults, with fears over foreclosures remaining front of mind.

“One thing is certain – there will be more competition, which has taken over as one of the biggest concerns in the industry. As demand for financing for arrears builds, propelled by a decline in property sales volume and increase in time to sell, we’ll see more capital finding its way into an already busy and fragmented market and spark an intense fight for loans, including new entrants. The rest of 2024 is set to be a lively period for bridging finance.”

Vic Jannels, CEO of BDLA, said: “It’s clear that bridging is an increasingly vital cog in the workings of the overall UK mortgage and property market. Latest data from the BDLA shows that bridging loan books hit a record high of £8.1bn in Q1 2024 and this survey confirms the level of optimism for ongoing growth in the market.

“There will be challenges, of course, but by maintaining high standards of transparency, professionalism and customer focus, we will be well-placed to meet the growing demand from both customers and institutional funders.”