UK
Bridging lending hits record £201.8m in Q2 as borrowers seek to rescue house purchases
Bridging loan completions increased by 2.9% in the second quarter (Q2) of the year, reaching £201.8 million as borrowers sought to rescue stalled housing transactions. According to The Bridging Trends report produced by MT Finance, this marked the highest figure since records began in 2015.
The report revealed that the primary reason for choosing bridging finance was to prevent a property chain from collapsing, which accounted for 23% of all bridging loan transactions in Q2. This represented an increase from the 19% recorded in the previous quarter.
Additionally, there was a significant rise in the share of borrowers using bridging loans for auction purchases, jumping from 9% in Q1 to an all-time high of 14% in Q2. MT Finance suggested that this increase could be attributed to buyers taking advantage of undervalued properties in a sluggish property market.
The average time to process a bridging loan fell to 52 days in Q2, the shortest duration in three years, down from 58 days in Q1. MT Finance linked this faster turnaround to the growing use of bridging finance for chain breaks and auction purchases.
William Lloyd-Hayward, group chief operating officer and managing director at Sirius Finance, highlighted the versatility of bridging loans, stating that while they are often associated with property investors, their use to save housing transactions from breaking down is becoming commonplace. He encouraged brokers unfamiliar with bridging loans to consider collaborating with experts to better serve their clients.
Bridging loans were also used to acquire investment assets, making up 18% of transactions in Q2, although this was a slight decrease from 21% in Q1. The drop was attributed to uncertainty surrounding high interest rates and the general economic outlook, including the upcoming general election.
Despite these challenges, demand for bridging finance remained strong, with the proportion of unregulated bridging loans increasing from 49% in Q1 to 54.2% in Q2. This shift indicates that landlords and investors are adapting to the changing interest rate environment. Andre Bartlett, director at Capital B Property Finance, noted that even amidst rising interest rates and economic uncertainty, the market is showing resilience, with borrowers increasingly turning to unregulated loans.
Interestingly, the share of second charge bridging loans fell from 21.3% in Q1 to 11.6% in Q2, as borrowers prioritised home purchases over releasing equity. MT Finance suggested that the reduction in second charge loans may have contributed to the slight drop in average monthly interest rates, which fell from 0.89% in Q1 to 0.86% in Q2. Meanwhile, the average loan-to-value (LTV) ratio also dipped slightly from 60% to 59.3%.
A bridging loan is a short-term loan used to ‘bridge’ a financial gap, typically between the purchase of one property and the sale of another. These loans are commonly used when buyers need immediate funds to complete a transaction, particularly when waiting for other financing to come through, or to prevent a property chain from collapsing. Bridging finance is also popular to buy properties at an auction, where quick access to funds is essential.
Bridging loans are often more flexible than traditional mortgages, with terms generally lasting between 6 to 12 months. However, they tend to come with higher interest rates due to the short-term nature and quicker processing times.
This finance is often used by property developers who want to move quickly and avoid traditional property chains and may have plans to do up and flip the property, or rent it out to tenants and later convert the loan into a buy to let mortgage. It is also used by everyday homeowners who are on the brink of losing a property purchase and are looking to use bridging to become cash buyers.
Richard Allan, head of specialist lender Capital Bean, commented that specialist lending continues to offer the flexibility needed in the current stagnant property market. He was encouraged by the increase in unregulated lending and praised the efficiency of completing deals, as the average completion time was reduced from 58 to 52 days.
The report aggregates data from numerous specialist finance packagers, demonstrating the adaptability of the sector.
Share this article:
-
Press Freedom3 days ago
The overreach of extraterritorial legislations
-
China-EU3 days ago
Further Deepen Reform Comprehensively, Advance Chinese Modernization, And Usher in a New Chapter for China-Belgium Cooperation
-
Azerbaijan3 days ago
COP29: Azerbaijan supports global peace
-
Israel3 days ago
Who is running the Foreign Office? Lammy or Corbyn?