Bridging transactions climb – but rates hit historic lows

Volumes rise in Q1 2022

Bridging transactions climb – but rates hit historic lows

Contributors reported a total of £156.78 million in bridging loan transactions in the first quarter of 2022 as interest rates fell to historical lows, according to the latest Bridging Trends data from short-term finance lender MT Finance.

The figure was 8.5% higher than in Q1 2021 (£144.51 million), and up 7.8% on the previous quarter (£145.42 million).

According to the data, more borrowers turned to bridging finance in Q1 2022 to help unlock property transactions, allowing them to meet deadlines and utilise the flexibility bridging is known for.

For the fourth consecutive quarter, the most popular use of a bridging loan was to purchase an investment property, accounting for 26% of all loans in Q1 2022, down from 29% in the previous quarter.

The competitive nature of the property market was highlighted by the second most popular reason for bridging finance in Q1 – funding a chain break. Trying to get property purchases moving accounted for the greatest increase in demand for bridging, jumping to 23% of all lending, from 18% in Q4 2021.

Borrowing was also cheaper in Q1 as the average monthly interest rate on a bridging loan fell to a historical low of 0.71% in the first quarter of 2022, down from 0.77% in Q4 2021. This drop in pricing, the report said, was driven mainly by the boost in regulated lending over the past three months as demand for regulated bridging loans increased for the first time since Q1 2021.

The number of regulated loans conducted by contributors increased to 43.9% in Q1 2022, compared with 36% in Q4 2021.

The spike in regulated bridging activity translated into lower loan-to-values (LTVs), with the average LTV in Q1 decreasing to 54.5% from 57.3% the previous quarter. Decreases in LTV could be down to the rise in asking prices.

Kimberley Gates, head of corporate partnerships at Sirius Property Finance, said it was not surprising that bridging loan transactions had increased again from the previous quarter.

“The property market continues to be turbulent for a variety of well-publicised reasons, so borrowers are looking for increasingly innovative ways to structure their debt. The stigma surrounding bridging also continues to subside as more investors, developers and homeowners are starting to see it as a useful tool for realising their real estate goals and no longer as a last resort,” Gates commented.

Sam O’Neill, head of bridging at Clifton Private Finance, agreed with Gates that there was nothing unexpected about gross lending being substantially up.

“Looking at our figures, enquiries are up, applications are up, and completions are up,” O’Neill said.

“The increase in chain break transactions and regulated bridging is another positive sign. An increasing number of homeowners are seeing bridging finance as something they can confidently rely on and trust as a viable financial product. When looking for reassurance that the industry is going in the right direction, we can’t ask for more positive feedback than that.”

Dale Jannels, MD at impact Specialist Finance, said the shortage of suitable housing stock would undoubtedly drive increased volumes in the bridging sector for the foreseeable future.

“This latest Bridging Trends highlights more than ever that cash is king. This applies to homeowners wishing to get their offer accepted before they have sold their own property, as well as investors wanting to raise funds quickly to invest in stock or refurbish existing to achieve better yields, for example,” Jannels remarked.

Bridging Trends combines bridging loan completions from several specialist finance packagers operating within the UK bridging market: Adapt Finance, Brightstar Financial, Capital B, Clever Lending, Clifton Private Finance, Complete FS, Enness Global, Impact Specialist Finance, LDNfinance, Optimum Commercial, Sirius Group, and UK Property Finance.