2022 has got off to a strong start with Bridging Trends contributors reporting a total of £156.78 million in bridging loan transactions in the first quarter of the year — 8.5% higher than in Q1 2021 (£144.51m), and up 7.8% on the previous quarter (£145.42m).
According to the data, more borrowers turned to bridging finance in Q1 to help unlock property transactions, allowing them to meet deadlines and utilise the flexibility bridging is known for.
For the fourth consecutive quarter, the most popular use of a bridging loan was to purchase an investment property, accounting for 26% of all loans in Q1 2022, down from 29% in the previous quarter.
The competitive nature of the property market was highlighted by the second most popular reason for bridging finance in Q1 — funding a chain break.
Trying to get property purchases moving accounted for the greatest increase in demand for bridging, jumping to 23% of all lending, from 18% in Q4 2021.
Borrowing was also cheaper in Q1 as the average monthly interest rate on a bridging loan fell to a historical low of 0.71% in the first quarter of 2022, down from 0.77% in Q4 2021.
This drop in pricing is driven mainly by the boost in regulated lending over the past three months as demand for regulated bridging loans increased for the first time since Q1 2021.
The number of regulated loans conducted by contributors increased to 43.9% in Q1 2022, compared with 36% in Q4 2021.
The spike in regulated bridging activity translated into lower loan-to-values (LTVs), with the average LTV in Q1 decreasing to 54.5% from 57.3% the previous quarter.
Decreases in LTV could be down to the rise in asking prices.
Bridging Trends combines bridging loan completions from several specialist finance packagers operating within the UK bridging market: Adapt Finance, Brightstar Financial, Capital B, Clever Lending, Clifton Private Finance, Complete FS, Enness Global, Impact Specialist Finance, LDNfinance, Optimum Commercial, Sirius Group, and UK Property Finance.
Demand for regulated bridging products was also a sentiment reflected in data provided by Knowledge Bank, which reported the top criteria search made by bridging finance brokers on their system in Q1 2022 was “regulated bridging”.
Bridging loans for business purposes saw the greatest decrease in demand with total transactions falling from 15% to 10%. This could be due to business owners becoming more wary about starting or investing in new businesses in the current economic climate.
Due to more purchase transactions over the quarter, the volume of second charge bridging transactions dropped — falling to 11.9% of all loans during Q1 2022, from 17% in the previous quarter and 22.2% in the same period last year.
Elsewhere, the average term of a bridging loan remained at 12 months during the first quarter. A completion time of 53 days during Q1 2022 was lower than an average completion time of 56 days during Q4 2021.
Kimberley Gates, Head of Corporate Partnerships, Sirius Property Finance comments:
“It comes as no surprise that bridging loan transactions have increased again from the previous quarter — the property market continues to be turbulent for a variety of well-publicised reasons so borrowers are looking for increasingly innovative ways to structure their debt.
The stigma surrounding bridging also continues to subside as more investors, developers and homeowners are starting to see it as a useful tool for realising their real estate goals and no longer as a last resort.”
Sam O’Neill, Head of Bridging, Clifton Private Finance comments:
“It’s good news across the board…increased borrowing and lower rates — what’s not to like?
Gross lending being substantially up isn’t a surprise, looking at our figures, enquiries are up, applications are up, and completions are up.
Could this be linked to increased competition in the lender market and historically low rates which are also reflected in the data?
Could we still be looking at long-standing hangover figures from the surge that the stamp duty holiday brought, or could this be the new normal?
The increase in chain break transactions and regulated bridging is another positive sign.
An increasing number of homeowners are seeing bridging finance as something they can confidently rely on and trust as a viable financial product.
When looking for reassurance that the industry is going in the right direction, we can’t ask for more positive feedback than that.
We have seen some lenders capitalise on the ever-decreasing USPs available in the market but smaller loan amounts at decent rates have been snapped up so I think the minimum loan amount criteria search might see some traction over the next quarter.
I don’t see this hugely boosting lending volumes but perhaps this may be reflected in transaction volumes.”
Dale Jannels, MD, impact Specialist Finance comments:
“This latest Bridging Trends highlights more than ever that cash is king.
This applies to homeowners wishing to get their offer accepted before they have sold their own property, as well as investors wanting to raise funds quickly to invest in stock or refurbish existing to achieve better yields for example.
The shortage of suitable housing stock will undoubtedly drive increased volumes in the bridging sector for the foreseeable future.”