2023 may have been marked by ups and downs but as the economic outlook remained uncertain for much of the year, an increasing number of borrowers turned to bridging lenders to secure their onward purchases, according to Bridging Trends. Combining data from 12 UK contributors*, it reported that a record £831 million in bridging loans were transacted in 2023 – the highest recorded gross lending figure since statistics began in 20215. Here’s what you need to know about the latest stats.
Borrowers maximised bridging finance’s flexibility and certainty
2023 started strong with contributors completing £278.8 million of bridging loans in Q1 alone. This was a record quarterly high and likely due to borrowers seeking out certainty and flexibility as the mainstream mortgage market grappled with the impact of 2022’s mini-Budget. This momentum had slowed down by Q2 – with transactions plummeting to £165.7 million – as borrowers were wary of taking on extra debt as both inflation and interest rates remained high.
By the second half of the year it was a different story, with Qs 3 and 4 reporting gross lending figures of £191 million and £195.5 million respectively.
Preventing a chain break and regulated bridging increase in popularity
As well as certainty and flexibility, it was also speed that borrowers were looking for from bridging lenders in 2023. In fact, preventing a chain break was the most popular use of a bridging loan in 2023, totaling 22% of transactions and up from 20% in 2022. Funding an investment purchase came in at number two but dropped from 23% in 2022 to 20% in 2023. Elsewhere, there were few fluctuations in demand for auction purchases, regulated refinance and re-bridges.
What did increase though was regulated bridging. Likely linked to the rising interest rates and product withdrawals from mortgage lenders, it rose from 44% in 2022 to 46.3% – the highest it’s been since 2020 when buyers were taking advantage of the Stamp Duty holiday. This was also backed up by Knowledge Bank’s data which showed that ‘regulated bridging’ was the top search made by brokers in 2023, followed by ‘minimum loan amount’ and ‘maximum LTV’. There was no change from 2022.
Economic factors impact interest rates
As lenders were impacted by rising base and Swap rates for much of the year, it was little surprise that this translated into the annual interest rate increasing to an average of 0.87% in 2023, up from 0.73% in 2022. This is the highest it’s been since 2015’s 0.91%. Encouragingly, this didn’t affect the average LTV which was static at 57% in 2023, suggesting that borrowers are being careful not to overstretch themselves.
As external factors saw more people turn to bridging to purchase an asset, this had a direct impact on the portion of second charge bridging loans, which dipped from 13.7% in 2022 to 10.9% in 2023 – a record low. Yet bridging’s popularity didn’t correlate with longer completion times, which fell from 59 days in 2022 to 58 in 2023. It may be a marginal change but it is good news for borrowers. The average term was consistent at 12 months for the seventh consecutive year.
The average completion time may have fallen from 59 days in 2022 to 58 in 2023 but it’s worth noting that this is still a jump on 2021’s 52 days. The mounting pressure on industry partners due to bridging’s popularity is likely the reason for this. The average term was consistent at 12 months.
A solution-led approach
While we are starting to see some stability return to the market as the Bank of England continues to hold the base rate, we all need to be mindful that many borrowers are still facing rising costs. At MT Finance, we understand these challenges and have designed both our buy-to-let and bridging products accordingly. Applications are always considered on their individual merits, even those that fall slightly outside our published criteria.
To further speed up the bridging process, we are now offering AVMs on standard residential bridging products. They are available for qualifying regulated and unregulated bridging finance applications up to a maximum loan-to-value (LTV) of 60%, and a maximum property value of £750,000. If you’d like to find out if your client’s property is eligible, simply fill out our online form and we’ll respond to you as soon as possible.
For all other bridging, regulated bridging and buy-to-let queries, get in touch here.
* Bridging Trends combines bridging loan completions from several specialist finance packagers operating within the UK bridging market: AFIG, Brightstar Financial, Capital B, Clever Lending, Clifton Private Finance, Complete FS, Enness, Impact Specialist Finance, ldnFinance, Optimum Commercial Finance, Sirius Finance and UK Property Finance. The data for broker criteria searches is supplied by Knowledge Bank. For more information, or to view previous versions of the infographic, visit bridgingtrends.com.