Bridging Loan Borrowing Is Up 22%, But Why?

All indications point to another buoyant year for bridging finance, following another major spike in loan applications. On the whole, the total value of the UK’s bridging sector has grown by as much as 22% over the past 12 months alone. More private borrowers and commercial customers are taking out bridging loans than ever before, but why?

Bridging finance differs from most conventional loans and mortgages in that it is a strictly short-term facility. Typically issued over a term of 12 months or less, bridging finance is also comparatively quick and easy to arrange. With all the essential paperwork and supporting documentation in place, the funds that are needed can be accessed within a few working days.

Coupled with monthly interest as low as 0.5%, the appeal of bridging finance is easy to understand; the more difficult and expensive it becomes to borrow money from major High Street banks, the more business flows the way of the UK’s thriving bridging sector.

A major spike in loan completions and applications

The most recent raft of figures suggests that between Q1 and Q2 this year, total bridging loan values swelled from £156.8 million to £178.4 million. This represents a growth of 13.8% over the course of three months alone. Year-on-year, total lending volumes skyrocketed by approximately 21.8% between Q1 2021 and Q2 2022.
Even so, there is still some way to go until the sector reaches pre-pandemic performance, having hit an all-time record performance of £180.9 million in Q4 2019.

As for why so many people are taking their business to bridge loan specialists, purchasing investment properties remains the single most common application for bridging finance. Following the trend of several previous consecutive quarters, investment property purchases once again accounted for almost a quarter of all bridging loans taken out in Q2 this year. This includes landlords purchasing properties to let out to tenants and investors looking to flip homes for capital gains.

Meanwhile, 21% of bridging loans issued in Q2 were used to help homebuyers break out of property chains. With competition in the housing market at an all-time high, more homeowners than ever before are using bridging finance to tap into the equity they have tied up in their homes and beat competing bidders to the punch.
Funding significant property improvements and refurbishments remained a popular use for bridging finance during Q2, accounting for around 30% of all loans issued.

A gradual decline to come?
Speaking on behalf of Henry, Director Geoff Garrett suggested that while the immediate outlook for the bridging sector is bright, the coming months could bring a gradual slowdown in overall activity.

“An increase in bridging loans does not signify that people are struggling financially. Such loans are taken in order to fund major purchases or investments but can only be granted to people who can prove they have larger, longer-term loans coming their way, such as a mortgage,” he said.

“Instead, an increase in bridging loan totals indicates that the systems in place are struggling to keep up with demand and can’t match the desired pace of buyers and sellers. The housing market, for example, is moving more slowly than it did a year ago, even two and three years ago. At the same time, buyer demand is extraordinarily high, and activity is through the roof. This causes delays in the conveyancing and buying process, which, in turn, increases the need for bridging loans.”

“However, with the cost of living and interest rates rising so rapidly, one has to expect to see a slight drop-off in buyer demand and, therefore, a decline in bridge financing over the next year or so.”