In 2023, the bridging loan sector witnessed growth, with a staggering £831 million in loans transacted. This figure marks the highest annual gross lending total since the inception of Bridging Trends in 2015, highlighting a significant increase in the market’s activity and borrower confidence.

The year kicked off on a high note, with the first quarter alone seeing £278.8 million in bridging loans, setting the record for the most loans transacted in a single quarter. This surge is attributed to borrowers seeking alternative financing solutions amid the uncertainties in the mainstream mortgage market, exacerbated by the economic repercussions of 2022’s mini-Budget.

Economic Challenges

Despite a robust start, the bridging loan market faced its share of challenges. The second quarter saw a dip in transactions to £165.7 million, as rising inflation and mortgage rates made borrowers cautious about taking on new debt. However, the market demonstrated resilience, with transaction volumes rebounding to £191 million in the third quarter and further increasing to £195.5 million by the year’s end.

The Rise of Regulated Bridging

One of the standout trends of 2023 was the growing dominance of regulated bridging loans, which claimed a 46.3% market share, up from 44% in 2022 and 40.8% in 2021. This shift is largely due to borrowers navigating the higher interest rates and the withdrawal of traditional mortgage products, especially in the first half of the year.

With the Bank of England’s base rate on the rise from January to September, the average annual bridging interest rate climbed to 0.87%, the highest since 2015. Despite these cost pressures, borrowers maintained prudent borrowing habits, with average loan-to-value ratios holding steady at 57%.

Changing Dynamics in Loan Types

The data also revealed a shift in borrower preferences, with a noticeable decline in the demand for second-charge bridging loans, which fell to a record low of 10.9% of the total market volume. This suggests a growing trend of borrowers opting to purchase new properties instead of leveraging equity from existing assets.

Efficiency in Processing

Even as the market grew, the average completion time for bridging loans saw a slight decrease, moving from 59 days in 2022 to 58 days in 2023. This minor improvement, however, comes in the context of a significant increase from 52 days in 2021, indicating the industry’s efforts to keep up with the rising demand.