The demand for bridging finance has notably
increased in the UK over the last decade. The bridging
loan UK market is strong and supports the UK
economy. It is significant from stamp duty holiday,
which records more bridging loans were granted in?
2021compared to 2020. The buyers took advantage of
the stamp duty holiday, thus causing a surge in
Bridging Finance is a short-term funding solution for
securing instant funding.
These loans are most popularly taken out in 2021 to purchase an investment property while prices are low. Studies reveal that a quarter of lending (25%) was for investment purchases and grew from 22% in 2020.
Another major purpose of securing bridging finance is to fix a property chain break; it contributes 20% of all lending. Thirdly, bridging loans taken out for business have fallen from 12% to 6%.
Home buyers in the UK are making a bridging loan market surge because they are trying to get an edge over the market.
Bridging market in 2022
According to 12 UK bridging loans brokers’ statistics, £156.78m in bridging loan transactions represents a surge of 8.5% in the first quarter of 2022 compared to the 1st quarter of 2021.
Bridging trends in 2022 depict that investment is being made most commonly in the property sector. With bridging loans, you can purchase a property before selling your existing property; for this reason, bridging loans were secured to get funding for chain-free house purchases. Now there is no compulsion to sell the property before buying another property. The demand for bridging rose to 23% of all lending, from 18% in the previous quarter.
Borrowing was 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 the year, down from 0.77% in Q4 2021. Total lending increased to £144.51m, a 5% rise from the previous quarter.
The spike in regulated bridging
According to Knowledge Bank data, the top criteria search in Q1 2022 was ‘regulated bridging’.
The number of regulated loans 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% in Q4 2021.
Bridging loans for business purposes saw the greatest decrease in demand, with total transactions falling from 15% to 10%.
Due to more purchase transactions over the quarter, the volume of second charge bridging transactions dropped to 11.9% of all loans during Q1 2022, from 17% in the previous quarter and 22.2% in the same period last year.
Bridging finance is considered a credible financing option. Funding for chain break contributed 20% of all loans in Q1 of this year 2021 and 23% of all loans during Q4 of 2020.
Expensive terms of bridging loans
The niche area of bridging finance is regulated lending. With fees included, they can cost about 8 to 12 percent a year, compared with 3 percent for the average two-year fixed rate deal on a conventional mortgage. High interest is being charged because lenders expect the bridge to be repaid over a short period, typically 12 months. Borrowers must be familiar with arrangement fees of 1-2 percent, plus valuation and legal fees. Thus, bridging loans are expensive.
Demand for property has pushed up house prices, which rose by 9.8 percent in the year to March,
Bridging loan trends
Bridging loans are fast bridging finance that offers borrowers instant cash flow in the market. Let’s investigate the bridging trends making bridging finance surge in the market.
Chain Breaks increased the ranking of Bridging Finance
According to Bridging Trends report fixing/preventing a broken property chain has notably increased the bridging finance ranking in the lending market for the second consecutive quarter. It contributed 20% of all loans in Q1 of this year 2021 and 23% of all loans during Q4 of 2020.
Growing demand for property refurbishment
Property refurbishment or renovation has always been in demand for investors because it can help them generate income and attract buyers or tenants. Moreover, due to the pandemic, the structure of organizations and public places has experienced a change. Therefore, refurbishment is high in demand, thus increasing the use of bridging finance.
Instant Cashflow requirements for businesses
Some businesses need capital injections to expand business and revenue, while others are consolidating existing debts to reduce outgoings. Cash flow is required; bridging finance can cater to the increasing demand for instant cash flow.
Bridging continues to become more essential
The question arises why only bridging loan is getting popular? The reason is its flexible lending and repayment criteria, fast funding, and diversity.
The increasing trend of bridging loans in 2022 has enabled investors, developers, landowners, enterprises, traders or homeowners to secure funding not only for house purchase but for various reasons such as property investment, purchase, refurbishment, fixing broken chains, paying debts or tax bills, etc.; not only for buying a home but for several purposes such as
- Fixing chain break
- Property investment
- Refurbishment or renovation
- Buying home at an auction
- Paying tax bills
- House construction
- Property transactions
- Fixing dilapidated properties
- Completing business deal/finances
Increased collaboration among trade associations
According to the forecasts, the bridging market will also increase as cooperation with FIBA on the education program amplifies the importance of Bridging finance.
The Bottom Line
The bottom line is that bridging finance is an ongoing trend in 2022. Now more investors, developers, and homeowners find it a useful tool for materializing their real estate goals.