The latest Bridging Trends data is in and has revealed a 15.3% spike in bridging loans transacted by contributors* during the third quarter of 2023. Hitting £191 million, this is a substantial increase from Q2’s £165.7 million and shows that demand for bridging finance is on the rise.
External factors impacting industry
One trend that stands out in particular is the average monthly interest rate, which has climbed from 0.84% in Q2 to 0.94% in Q3. This marks the highest rate we’ve seen since the launch of Bridging Trends in Q1 2015, when it hit 0.95% and the high-interest environment and base rate hikes may be to blame for this increase.
Despite the increase in borrowing, the average loan-to-value (LTV) ratio has remained relatively stable at just under 60%, rising slightly from 56.9% in Q2 to 57.3% in Q3. This could be attributed to the fact that borrowers seem to be borrowing more – perhaps due to lower property valuations caused by the current softening in house prices.
It’s worth noting that second charge bridging loan demand has been on the decline for the fifth quarter in a row, dropping from 10.7% in Q2 to 10% in Q3. It’s certainly something we’ll be keeping a close eye on.
Preventing a chain break drives demand
In Q3, preventing a chain break was the top reason people took out bridging loans, accounting for 22% of all transactions, which is unsurprising considering the current climate.
One trend that decreased, however, was using bridging finance for property renovations, which decreased by almost half from 13% in Q2 to 7% in Q3. This decline may be attributed to the slower growth of house prices, causing landlords and developers to carefully consider the cost of refurbishments before proceeding.
Recently, there have been many discussions about more buyers turning to auctions, and this is reflected in the data. In fact, the percentage of bridging loans for auction purchases increased from 6% in Q2 to 10% in Q3. Additionally, there has been an increase in the number of loans taken out for refinancing purposes, with regulated loans coming in at 12% and unregulated loans at 10%.
Regulated bridging dips but is up year on year
The proportion of regulated bridging loans slightly dipped from 48.7% in Q2 to 46.1% in the third quarter. However, it is not advisable to delve too deeply into this, as it is still higher than the 45.2% reported in Q3 of 2022, and Knowledge Bank reported that ‘regulated bridging’ was the top search term used by brokers on their system in Q3, taking over from ‘minimum loan amount’.
Meanwhile, there was an increase in the completion time of bridging loans from 58 days in Q2 to 62 days in Q3. This increase is likely due to the usual summer slowdown and has been observed in previous third quarters, such as in Q3 of 2022 where it rose from 57 days in Q2 2022, to 60 days. The average term of a bridging loan remained consistent at 12 months.
Support is key
As borrowers continue to adapt to the high-interest rate environment, it remains vital that both lenders and brokers are offering the support they need. Flexibility is key, as is the ability to take a pragmatic view of applications. We understand the struggles of your clients and are determined to be as helpful and flexible as we can be to provide a solution. We will take a view on all buy-to-let mortgage or bridging finance cases that fall outside our published criteria and welcome first-time landlords and buyers, as well as those with complex income structures.
If you would like to find out more about how we can support your client then we’d love to hear from you. Our online form is quick and easy to fill in and a member of our team will get back to you shortly.
*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, Sirius Group, and UK Property Finance. The data for top broker criteria searches is supplied by Knowledge Bank.