Newly published data indicates that 2022 is shaping up to be another strong year for the bridging finance sector, as the UK moves deeper into its worst economic crisis since 2008. The latest Bridging Trends report indicates a huge 22% increase in bridging loan transactions for Q2, compared to the same time last year.
Total bridging loan volumes for the second quarter came out at £178.4 million – up from £146.5 million during the same period in 2021. In addition, quarterly performance for the second three months of the year was up by around 14% compared to Q1.
Research suggests that as mainstream lenders continue to tighten their eligibility requirements and increase their interest rates, more private borrowers and commercial customers are setting their sights on the specialist lending sector. Particularly where affordable short-term lending is concerned, the bridging sector is providing a welcome lifeline for those in need of time-critical funding.
Property Investments Still the Top Use for Bridging Loans
Following the trend of several previous quarters, purchasing investment properties remained the most popular application for bridging finance throughout the second quarter. Around 24% of all transactions were conducted for investment property purchases – a slight reduction from the 26% share of the market in Q1.
After which, the second most popular use for bridging finance was opting out of conventional property chains – accounting for around 21% of total bridging loan volumes.
With competition on the housing market at an all-time high, more prospective buyers than ever before are using short-term bridging finance to beat competing bidders to the punch. In addition, a recent study found that cash buyers are being afforded discounts of anything from £70,000 to £150,000, simply for purchasing properties outright, as opposed to with conventional mortgages.
The UK’s growing lack of available housing inventory has also spurred a major spike in the number of investors and private buyers setting their sights on affordable properties at auction. 4% of all bridging loans issued in Q2 were used for this purpose – double the 2% recorded during the first three months of the year.
Likewise, there was a significant increase in the number of regulated refinance loans issued in Q2 – accounting for around 10% of total transactions, up from 5% during Q1.
Bridging Loan Rates Continue to Hover Around Record Lows
Ongoing Bank of England base rate hikes will inevitably lead to higher interest over the coming months. For the time being, however, average bridging loan rates continue to hover around all-time lows.
During the second quarter of the year, the average monthly interest rate on a bridging loan issued was 0.69% – slightly down from the 0.71% of the previous quarter and a new record low. The average LTV of bridging loans issued during Q2 increased slightly, reaching 56.1% compared to 54.5% in the previous quarter.
There was no real change in the split between regulated and non-regulated bridging loans – regulated loans accounting for 43.3% of all loans issued in Q2. As expected, the overwhelming majority of bridging loans issued during the second quarter were first-charge loans, accounting for around 83 per cent of all bridging finance transactions.
“It’s no surprise to see 83% of Q2’s bridging loans being on a first-charge basis as the lending options for stand-alone second charges are fewer than they once were,” commented Stephen Watts, bridging and development finance specialist at Brightstar.
“It is also not surprising to see a 14% rise in bridging finance activity. The demand for property currently outweighs the number of suitable properties for sale to home buyers and investors, therefore, bridging finance is being increasingly sought to enable buyers to put themselves ahead of their competition. With recent statistics confirming, on average, that there are up to 29 potential buyers for each property on the market for sale, it’s not a shock to see such an increase in requirement for fast, short-term bridging finance.”
