The third quarter of 2023 has witnessed a significant resurgence in the UK bridging loan sector. According to Bridging Trends, there’s been a 15.3% increase in bridging loan transactions compared to the second quarter, amounting to a total of £191 million. This upswing from Q2’s £165.7 million underscores the growing reliance on bridging loans for their reliability and adaptability in a fluctuating economic landscape.

Interest Rates and Loan-to-Value Ratios

An interesting development in this quarter is the rise in the average monthly interest rate on bridging loans. The rate jumped from 0.84% in Q2 to 0.94% in Q3, the highest since the first quarter of 2015. This increment is indicative of the broader high-interest rate environment and the impact of base rate hikes on the sector.

Despite these higher rates, the average loan-to-value (LTV) ratio remained below 60%. This could suggest that borrowers are seeking larger loans due to a dip in property valuations as the housing market cools down.

Changing Trends in Loan Utilisation

The primary purpose of bridging loans in Q3 was to prevent chain breaks in property transactions, accounting for 22% of all loans. However, there was a noticeable decline in loans used for heavy refurbishment projects – from 13% in Q2 to only 7% in Q3. This is the lowest since Q4 2020, reflecting property owners’ and developers’ reluctance to engage in expensive renovations amid slower house price growth.

On the other hand, bridging loans for auction purchases rose to 10% of the total, up from 6% in Q2. There was also an increase in loans for refinancing purposes, both regulated and unregulated.

Shifts in Bridging Loan Characteristics

Interestingly, the demand for second-charge bridging loans has been on a downward trend for five consecutive quarters, dropping slightly from 10.7% in Q2 to 10% in Q3. Meanwhile, the demand for regulated bridging loans decreased from 48.7% in Q2 to 46.1% in Q3. Despite this, regulated bridging remained a top search criteria among brokers on the Knowledge Bank’s system, highlighting its ongoing relevance.

Loan Completion Times and Terms

Reflecting a seasonal pattern, the average time to complete a bridging loan increased from 58 days in Q2 to 62 days in Q3. This delay is likely due to the traditional summer slowdown, a trend observed in previous years as well. However, the average term of a bridging loan has remained stable at 12 months, indicating a consistent approach to loan duration in the market.