Bridging loans are proving to be a critical lifeline for nearly 20% of homebuyers. These short-term financial aids are increasingly being used to prevent property transactions from falling apart, a phenomenon more common in today’s slow conveyancing processes. According to the latest figures from Bridging Trends, nearly one in five bridging loans distributed by top UK financiers is aimed at preventing these dreaded chain breaks.
The Rise of Bridging Loans
Throughout the first quarter of this year, preventing a chain break was the second most popular reason for securing bridging finance, with its usage climbing from 16% to 19% since the previous quarter. This rise reflects an urgent need among homeowners to close deals swiftly to secure their desired properties.
What is Bridging Finance?
Bridging finance differs significantly from traditional mortgages. It serves as a temporary solution, designed to “bridge” the gap between immediate funding needs and the availability of more permanent financing solutions. These loans are typically short-term, generally meant to be repaid within a few months to a couple of years, making them a flexible option during times of need.
Regulatory Shifts and Market Trends
The market for bridging loans is not just growing; it’s evolving. The first quarter of 2024 saw regulated bridging loans increase to 51% of the total loans issued, marking the highest rate since the third quarter of 2020, which recorded a 53% rate. This regulatory uptick indicates a significant shift towards more safeguarded lending practices in the bridging finance sector.
Investment and Business Funding via Bridging Loans
While bridging loans for chain breaks are on the rise, their primary use remains the purchase of investment properties, accounting for 21% of all loans in the first quarter, albeit slightly down from 24% in the previous quarter. More notably, the demand for bridging loans for business funding has surged dramatically. This category nearly doubled from 8% in the fourth quarter of 2023 to 15% in the first quarter of 2024, reaching its peak since late 2021.
Expert Insights
Industry experts underline the broadening appeal and essential role of bridging loans. William Lloyd-Hayward, COO of Brightstar Financial and MD at Sirius Finance, highlights the diverse growth within the sector. He notes, “Overall lending continues to grow, and the diversity of this growth is striking. Demand from businesses for short-term property funding has doubled, while homeowners increasingly turn to bridging, with the regulated part of the market jumping to pre-pandemic levels.”
Gareth Lewis, MD at MT Finance, echoes this sentiment, emphasising the reliability, speed, and adaptability of bridging loans: “It’s clear that borrowers are continuing to turn to bridging lenders thanks to the certainty, speed, and flexibility we are offering them.”