New data from Bridging Trends suggests that in spite of the year’s first quarterly interest rate increase, total bridging activity has once again reached a new record high. The impressive figures from Q3 indicate total bridging loan transactions of £214.7 million for the quarter, up a huge 20% on Q2 (£178.4 million).
This is the best quarterly performance for the UK’s bridging sector since Bridging Trends began monitoring the sector and reporting on combined market activity in 2015. The figures are even more impressive when taking into account the year’s first (albeit minor) increase in average bridging loan interest rates.
Having stood at 0.69% in Q2, the average interest rate on a bridging loan issued in Q3 came out at 0.73%.
Chain break prevention: The new top use for bridging finance
There was also a significant shift in borrower spending patterns in Q3, bucking the trend of several consecutive prior months. Chain break prevention topped the table as the most popular application for bridging finance, accounting for a huge 22% of all transactions (up from 21% in Q2).
Purchasing investment properties, which had been the most popular application for bridging finance for five previous quarters in a row, accounted for just 16% of all transactions in Q3 (a major fall from 24% in Q2). This is the lowest share of the bridging market ever recorded for purchasing properties for investment purposes and is likely the result of investors delaying important decisions due to the turbulent economic climate.
“I anticipate investment purchases to increase in the next few months,” commented Sam O’Neill, Head of Bridging at Clifton Private Finance.
“The total gross lending will be an interesting benchmark for the next quarter given the current uncertainty of the market. With uncertainty comes opportunity, and we are already seeing investors looking to capitalise on under market value transactions caused by panic selling vendors.”
“I would be interested to see the re-bridging figure in the next quarter’s statistics. Current bridging loans nearing their term’s end are subject to more stringent criteria on mortgages and an uncertain buying and selling market. Will more lenders who don’t currently consider re-bridging see this as an opportunity? Or a necessity to keep pace with other lenders and the demands of the market?”
A boost in business bridging
Elsewhere, the use of bridging loans for business applications increased by almost 100%, hitting a new height of 11% in Q3 (up from 6% in Q2). Likewise, there was a major increase in the number of borrowers taking out bridging loans to finance auction purchasers, up from 5% in Q2 to 8% in Q3.
All of this occurred at the same time that average monthly interest rates on bridging loans increased for the first time in 2022. Having hit a record low of 0.69% in Q2, average bridging loan interest rates increased slightly to 0.73% in Q3.
Rates remain low in comparison with historic averages, but there are those who believe further increases over the coming months are inevitable.
“As predicted in Q2, interest rates have started to slowly rise to 0.73%, but it is worth noting they are virtually on par with Q3 in 2021 (0.72%). What comes next remains to be seen, but I would not be surprised if interest rates continue to rise and investors remain cautious,” said Gareth Lewis, Commercial Director at MT Finance.”
“Considering the volumes we have seen in Q3, bridging finance clearly continues to be a useful tool for homeowners and investors alike. What has been interesting is the drop-off in bridging being utilised for investment purchases, which is likely due to buyers taking stock of the current market. While it’s too early for us to really feel the impact of September’s mini-budget, I expect this will be more visible in Q4.”