Bridging lending reaches £831m in 2023

According to MT Finance’s Bridging Trends report, the year started strong with £278.8m in the first quarter of the year, the highest level of loans in a single quarter.

The report noted that this was due to borrowers opting for bridging finance and uncertainty in the mainstream mortgage market after the mini Budget.

In the second quarter, loans transacted fell to £165.7m, as borrowers were “hesitant to take on debt due to high inflation and mortgage rates”.

However, this rebounded and stayed stable throughout the second half of the year to £191m in Q3 and £195.5m in Q4.

Chain break most popular bridging use

Around 22 per cent of all loans were used to prevent a chain break, which took over from investment purchase as the most popular reason for bridging in 2022 at 23 per cent in 2022.

Investment purchase made up 20 per cent of all loans in 2023.

The report added that the demand for auction purchases, regulated refinance, and re-bridges increased compared to the previous year.

Regulated bridging rose to 46.3 per cent of the market in 2023, up from 44 per cent in 2022. MT Finance said that it was “likely influenced by the rising interest rates and product withdrawals from mortgage lenders”.

Annual bridging rates came to an average of 0.87 per cent in 2023, up from 0.73 per cent in 2022. This is partially due to the base rate increase and is the highest annual average interest rate recorded since 2015 at 0.91 per cent.

The average loan to value (LTV) remained stable at 57 per cent in 2023, and the report said that borrowers are “not over-stretching themselves despite rising interest rates”.

The split between first and second charge bridging loans is consistent in 2023, although the demand for second charge bridging has fallen to 10.9 per cent of total market volume. This is down from 13.7 per cent in 2022.

The average completion time stands at 58 days, in line with the previous year’s figures, but this is an increase from 2021 figures of 52 days, showing mounting pressure on the sector due to growing demand.

The average term has remained stable at 12 months for the seventh year in a row.

‘Encouraging’ to see bridging popularity growing

Gareth Lewis, managing director at MT Finance, said that it was “encouraging to see that bridging finance’s popularity is growing and that an increasing number of borrowers are unlocking its speed and flexibility”.

He added: “Brokers have clearly worked hard to educate their clients and that has certainly paid off. As a sense of stability returns to the mainstream mortgage market, my hope is that borrowers continue to utilise bridging’s versatility for everything from unlocking equity to funding an auction purchase and we move further away from the perception that it is solely a last-resort option.”

Dale Jannels, managing director at Impact Specialist Finance, agreed that it was “no surprise” to see the growth in overall lending figures, and it had reflected what it had seen, especially on the regulated bridging side.

“As a business that’s been operating in bridging for decades, we recognise and understand the products’ complexities and have seen almost every kind of customer scenario. This helps identify potential issues before they arise and helps brokers and their customers use regulated bridging sensibly and with eyes wide open.

“I would strongly recommend that brokers seek the help of experts, who contribute to this index, as I don’t see demand for bridging diminishing, but increasing, and, inevitably, with more complexity,” he said.

Matthew Dilks, Bridging and Commercial Specialist at Clever Lending, added that it had also seen the “number and variety of bridging cases we handled reach unprecedented levels”.

“What’s encouraging has been the number of brokers who have used us for bridging for the first time and, personally, it has been extremely rewarding to support them in delivering finance to support their customers’ requirements and needs,” he said.

Andre Bartlett, director at Capital B Property Finance, continued that it was “noteworthy how borrowers utilised the speed and flexibility of bridging loans to prevent chain breaks, especially amid market uncertainties”.

“Additionally, the rise in regulated bridging suggests a shift in borrower preferences influenced by evolving market dynamics, including rising interest rates and product withdrawals from traditional mortgage lenders. Despite these challenges, it’s encouraging to observe stable average LTV levels.

“However, the decline in demand for second charge bridging loans highlights changing borrower priorities, potentially driven by a preference for property purchases over equity release. Overall, the data highlight the resilience and adaptability of the bridging finance market,” he said.