In the second quarter of 2023, the amount of bridging lending witnessed a substantial decrease, slowing down to £165.7 million. This figure is particularly striking when compared to the first quarter’s £278.8 million, representing a sharp -40.6% drop. But why is this significant?

The first quarter of the year saw the highest amount of bridging lending since the onset of the pandemic. This surge was unprecedented and, as experts suggest, not a standard that could be sustained continuously. The impressive performance in Q1 set a high bar, and the Q2 figures, while lower, shouldn’t necessarily alarm potential investors or current property holders.

Chris Hodgkinson, managing director of Apex Bridging, provides valuable insight: “After an exceptionally busy Q1, the bridging sector transitioned to a more tranquil state in the subsequent months.” He suggests that this cooling down could extend towards the year’s end, a consequence of homeowners adjusting to the new reality of increased mortgage rates.

Rising Costs and Cautious Investors

It’s important to note that financing in the short-term lending sector, including bridging loans, has also become pricier. This escalation makes it increasingly challenging for investments to yield satisfactory returns. However, this hasn’t dissuaded everyone. There’s a silver lining: a growing number of individuals are utilising these products for investment purchases and substantial refurbishments. This trend implies that, despite harsher conditions, investors still identify robust opportunities for significant returns in the current market.

Decoding Market Confidence Amidst High Mortgage Rates

One of the probable reasons for the deceleration in bridging during Q2 is the market’s reaction to climbing mortgage rates throughout 2023. The preceding months had buyers grappling with considerable mortgage rate volatility, leading to an unstable environment where property transactions were more prone to collapse, prompting the need for bridging finance.

Yet, the market’s confidence seems unshaken. The proportion of borrowers employing bridging loans for investment purchases leaped from 15% in Q1 to 22% in Q2. This shift indicates a strong belief in the market’s potential to provide healthy returns, beyond merely using this financial service for chain break situations.

Furthermore, there was an uptick in those resorting to bridging for extensive refurbishments — a rise from 10% in Q1 to 13% in Q2. These statistics signify a market that’s adapting and individuals willing to invest in properties that perhaps require more work but offer promising potential.

Bridging Rates on the Rise: A Closer Look

Despite not matching the increases in the mainstream mortgage market, the costs associated with bridging finance have also ascended. Typical bridging rates were reported at 0.84% in Q2 2023, a jump from 0.79% in the preceding quarter, and a more considerable rise from 0.69% in Q2 2022.