Bridging loans post record figure in Q3

Gross lending rose for third consecutive quarter

Bridging loans post record figure in Q3

A total of £214.7 million in bridging loans was transacted by contributors during the third quarter of 2022 – the highest contributor lending amount since the Bridging Trends report was launched in 2015.

This figure represents a 20% increase from the £178.4 million recorded in the previous quarter, and the third consecutive quarterly rise in gross contributor lending.

Bridging Trends is a quarterly publication developed by short-term finance lender, MT Finance, as a method for monitoring the latest trends in UK bridging finance to offer a general snapshot of the industry. The report covers data gathered from several specialist packagers operating within the UK bridging market.

According to the latest Bridging Trends report, preventing a chain break became the most popular use of a bridging loan in Q3 at 22% of total transactions, up from 21% in Q2. Purchasing an investment property – previously the most popular use of bridging finance for the five previous quarters – dropped by a third, from 24% to 16%. This, the report noted, could be due to investors exercising caution amid an unpredictable economic climate.

Meanwhile, bridging loans for business purposes nearly doubled, soaring from 6% in Q2 to 11% in Q3. Auction finance also saw a jump in demand, rising from 5% in Q2 to 8% in Q3.

The average monthly interest rate increased for the first time this year to 0.73%, up from the record low of 0.69% reported in the previous quarter, as the cost of borrowing increased across the financial services industry. The average loan-to-value level also increased in Q3 to 59.6%, up from 56.2% in Q2.

Regulated bridging remained in high demand, taking 45.2% of market share, up from 43.3% in Q2. This is the highest percentage in regulated bridging transactions since Q1 2021.

Read more: “Bridging remains an absolutely solid opportunity” says head of ASTL.

Pressure on industry professionals continued into Q3 as demand soared – highlighted by the average completion time increasing to 60 days in Q3, from 57 days in the previous quarter.

“The total gross lending figure will be an interesting benchmark for the next quarter given the current uncertainty of the market,” commented Sam O’Neill, Head of Bridging, Clifton Private Finance. “With uncertainty comes opportunity, and we are already seeing investors looking to capitalise on under market value transactions caused by panic-selling vendors.

“I anticipate investment purchases to increase in the next few months. I would be interested to see the re-bridging figure in the next quarter’s statistics. Current bridging loans nearing their term’s end are subject to more stringent criteria on mortgages and an uncertain buying/selling market. Will more lenders who don’t currently consider re-bridging see this as an opportunity? Or a necessity to keep pace with other lenders and the demands of the market?”

Stephen Watts, bridging and development finance specialist at Brightstar, added that it was not surprising that chain-break bridging is the biggest use of funds for the quarter, following the base rate rises seen throughout this year and mortgage interest rates increasing across the industry.

“Borrowers that have had mortgage products withdrawn on them with little or no notice or have lost their sale due to their buyers no longer fitting mortgage affordability criteria, would then turn to short-term funding solutions to ensure their purchase can still go through as planned. It will be interesting to see how this impacts on next quarter’s data,” Watts said.

Gareth Lewis, commercial director at MT Finance, remarked that considering the volumes which were reported in Q3, bridging finance continues to be a useful tool for homeowners and investors alike.

“What has been interesting is the drop-off in bridging being utilised for investment purchases, which is likely due to buyers taking stock of the current market,” Lewis said. “While it’s too early for us to really feel the impact of September’s mini-budget, I expect this will be more visible in Q4.

“As predicted in Q2, interest rates have started to slowly rise to 0.73%, but it is worth noting they are virtually on a par with Q3 in 2021 (0.72%). I would not be surprised if interest rates continue to rise, and investors remain cautious.”