Financial Reporter reviewed the latest bridging loan activity in Q2 of 2023, from Bridging Trends data.
What are Bridging Loans? Think of bridging loans as short-term financial bridges. They’re used by people who need money quickly, usually to buy a property before they sell their current one. It’s a bit like a short-term advance on funds you’re expecting soon.
The Main Points from the Article:
- Bridging Loans Have Slowed Down: In Q2, there was a drop in bridging loan activity. The total amount lent fell by 41% compared to the previous quarter. This was the quietest quarter for such loans since early 2022.
- Why? Several reasons:
- Consumer Caution: People were careful about taking on extra debt. Why? High inflation and rising interest rates made borrowing more expensive.
- Interest Rates on the Rise: The average interest rate on bridging loans went up slightly, making them a bit costlier.
- Mortgage Market Shaken: Some regular mortgages became harder to get, affecting people’s confidence. This pushed more folks towards bridging finance.
- Not All Gloomy: Despite the reduced lending volumes, there were still many inquiries. This suggests people are interested but may be waiting for better economic conditions.
- A Silver Lining: Even though people were borrowing, they were cautious. Most kept their borrowing levels below 60% of their property’s value. This means they’re avoiding risky debt levels.
- Why are People Using Bridging Loans?
- Avoiding Chain Breaks: The main use of these loans was to prevent delays when someone is in a chain of property sales and one link breaks (like if someone pulls out of buying your house, but you’re set to buy another).
- Investing: Property investors used bridging loans to quickly snap up property bargains.
- Expert Opinions:
- Sam O’Neill: Bridging loans are valuable tools, especially in uncertain times. They can help seal a deal, despite costs.
- Dale Jannels: Even though the figures suggest a slowdown, there’s a lot of interest, indicating potential future demand.
- Matthew Dilks: Some expect a decline in bridging loans due to lower property sales values, but this hasn’t happened yet. Many borrowers have substantial equity in their properties, which can offset slight reductions in property prices. Additionally, more people are taking loans for property refurbishments.
In Simple Terms:
The bridging loan market saw a slowdown in Q2. People are being careful about borrowing, especially with rising costs and uncertain times. But there’s a silver lining: borrowers are staying cautious, and there’s a good amount of interest in the market. This suggests that when conditions improve, we might see a surge in activity!