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Bridging loans fall to lowest levels since 2022

  • 10/08/2023
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Bridging loans fall to lowest levels since 2022
Bridging loan transactions came to £165.7m in the second quarter of this year, the lowest figure since the first quarter of last year, a report has found.

According to the latest Bridging Trends report, it is also a 40.6 per cent drop on the record-breaking figure of £278.8m in the first quarter of this year.

The report attributed the low level of lending to heightened consumer caution over additional debt, high inflation and mortgage interest rate rises dampened demand.

Consecutive interest rate rises has pushed the weighted average monthly interest rate on bridging loan from 0.79 per cent to 0.84 per cent, the highest interest rate since Q2 2022 when it was 0.85 per cent.

The average loan to value (LTV) was pegged at 56.9 per cent, which is up from 54.7 per cent in the first quarter. The report said that this showed that borrowers were not overstretching themselves.

However, the report noted that rising interest rates and product pulls from mortgage lenders has led more borrowers to turn to bridging to complete property purchases.

It said that the regulated bridging market extended its market share to 48.7 per cent, up from 46.2 per cent in the first quarter.

This is the highest proportion since 53 per cent in the third quarter of 2020.


Bridging the chain

Bridging loans to prevent chain breaks was the most popular use of bridging at 24 per cent.

Investment purchases jumped from 15 per cent in Q1 to 22 per cent in Q2.

Second charge bridging demand fell for the fourth quarter in a row to its lowest level since Q3 2021, falling from 11.2 per cent in Q1 to 10.7 per cent in Q2.

Average bridging loan completion time increased from 54 days in Q1 to 58 fays in Q2 and the average term of a bridging loan was consistent at 12 months.


Figures may not be as ‘gloomy’ as they appear

Sam O’Neill, head of bridging at Clifton Private Finance, said that the increase in bridging rate did not come as a huge surprise but it “isn’t as much of a dramatic knee-jerk reaction as perhaps it could have been”.

He noted that chain break leading the charge in loan purposes showed despite cost a “bridging loan is often a means to an end and that the juice is worth the squeeze”.

“Similarly, it’s no surprise to see investment purchases on the rise as investors (new and old) capitalising on opportunities in the marketplace often come to the surface at times of uncertainty,” O’Neill added.

Dale Jannels, managing director at Impact Specialist Finance, continued that latest figures could seem “gloomy” in terms of lending volumes but enquiries were still strong.

“Although it is definitely harder and more time-consuming to get some cases placed and funded with interest rates where they are currently. Despite this, what we are seeing is more motivated borrowers and fewer ‘tyre kickers’, which leads me to suspect a degree of pent-up demand is there and is ready to be unleashed once economic conditions become more favourable,” he noted.

Matthew Dilks, bridging and commercial specialist at Clever Lending, said that there was an expectation that regulated bridging would start to fall as property sale exits were squeezed by lower sale values being achieved, but this may not be the case.

“These figures along with what we are seeing at the start of Q3 show this isn’t really happening yet and I’m not sure it will either going forward. Within the chain break figures listed, I would anticipate a decent proportion of these will be downsizers and such borrowers have substantial equity, so can ride slight reductions in their eventual sale price.

“Finally, it’s also interesting to see a rise in finance for heavy refurbishments and I would expect to see this continue with professional portfolio investors seeking to improve yields with many opting to buy properties and immediately refurb, with many taking advantage with amateur landlords selling up,” he noted.

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