According to the latest Bridging Trends report, bridging loan transactions experienced a robust surge during the third quarter of 2023. The transactions amounted to a 15.3% increase, representing a significant leap from the £165.7 million recorded in the second quarter.
Shift in Average Monthly Interest Rate
A noteworthy shift took place in the average monthly interest rate for bridging loans during this period. The rate jumped from 0.84% in the second quarter to 0.94% in the third. This hike is the steepest since the inception of Bridging Trends back in the first quarter of 2015, when it reached 0.95%.
Steady Loan-to-Value Metrics
In terms of the average loan-to-value (LTV) ratio, it remains below the 60% threshold. The LTV ratio saw a slight increase from 56.9% in Q2 to 57.3% in Q3.
Reasons for Opting for Bridging Loans
Bridging loans serve multiple purposes, and the dominant reason for opting for them during Q3 was to prevent a chain break in property transactions, accounting for 22% of total transactions. On the other hand, the demand for bridging loans for financing major refurbishment projects fell from 13% in Q2 to a mere 7% in Q3. This drop is the lowest since the fourth quarter of 2020.
Funding auction purchases made up 10% of all bridging loans in Q3, a growth from 6% in the preceding quarter. Additionally, there was a marked increase in bridging loans for both regulated and unregulated refinancing purposes, at 12% and 10%, respectively.
Expert Opinions on Bridging Lending Trends
Chris Whitney, the Head of Specialist Lending at Enness Global, weighed in on the data. He remarked on the increased completion times, noting it as a significant topic of discussion in the industry. He related these delays to the summer period but expressed concerns about the trend’s direction. Whitney also commented on the comparable average interest rates between now and 2015, pointing out that the base rate difference between the two periods was significant. He suggested that high liquidity in the UK market and increased competition might be factors keeping the bridging rates relatively low.
Expressing optimism, he stated, “The market has acknowledged the adaptability of bridging loans, which are now seen as an essential tool for a larger segment of borrowers.”
William Lloyd-Hayward, the Group Chief Operating Officer at Brightstar Group, highlighted the resilience and adaptability of the bridging market. He acknowledged the increasing interest rates in the mainstream market and emphasised the importance of partnering with sector experts to choose the right bridging lender.
Chris Borwick, Director of Capital B Property Finance, viewed the 15.3% increase in bridging lending volumes positively, especially against a backdrop of falling mortgage approvals. Although he acknowledged the challenges, he underlined the importance of expertise and market knowledge.
In Conclusion
The UK bridging lending market has shown impressive resilience and adaptability in the face of rising interest rates and a challenging environment. The demand for such loans remains robust, and their versatility continues to be appreciated by borrowers from various segments.