Newly-published figures suggest that the UK’s bridging finance sector achieved record performance in Q3, with total combined transactions of around £215 million. This represents a huge increase of more than 20% from the previous quarter and indicates that confidence in the bridging loan sector as a whole remains buoyant.
This marks the third consecutive quarter that total bridging transaction volumes have increased significantly, despite average interest rates on bridging loans having also increased during the same time.
As the UK’s economic picture becomes increasingly unstable, experts believe that the next few months could be particularly interesting for the short-term bridging sector.
“With uncertainty comes opportunity, and we are already seeing investors looking to capitalize on under-market value transactions caused by panic-selling vendors,” said the head of bridging at Clifton Private Finance, Sam O’Neill.
“Current bridging loans nearing their term’s end are subject to more stringent criteria on mortgages and an uncertain buying and selling market. Will more lenders who don’t currently consider re-bridging see this as an opportunity? Or a necessity to keep pace with other lenders and the demands of the market?” he said.
Bridging Finance for Chain Breaks Grows in Popularity
Data from the past three months suggests that funding property chain breaks were the single most popular application for bridging finance in Q3. Homeowners have been increasingly turning to fast-access bridging loans to cover the costs of relocating, and to avoid the potential pitfalls of conventional property chains.
Chain breaks accounted for 22% of all bridging finance transactions in Q3 – a small yet notable increase of 1% from the previous quarter.
Stephen Watts, bridging and development finance specialist at Brightstar, said it came to an as little surprise to find that the popularity of bridging for chain-break purposes was at an all-time high.
“Following the base rate rises we’ve seen throughout this year and mortgage interest rates increasing across the industry, it’s no surprise that chain-break bridging is the biggest use of funds for the quarter,” he said.
“Borrowers that have had mortgage products withdrawn on them with little or no notice or have lost their sale due to their buyers no longer fitting mortgage affordability criteria would then turn to short-term funding solutions to ensure their purchase can still go through as planned. It will be interesting to see how this impacts next quarter’s data.”
Investment Property Purchases Slip in the Rankings
Typically the most popular application for bridging finance, purchasing investment properties slipped to third place in Q3.
Around 16% of all bridging loans taken out were used for this purpose over the past three months – a significant fall from the 24% recorded in Q2. Bridging loans issued for business purposes almost doubled in popularity in Q3 (accounting for 11% of all loans issued), while loans issued for auction property purchases accounted for 8% of all transactions (an increase of 3%).
Meanwhile, the average monthly interest rate on a bridging loan increased slightly from 0.69% in Q2 to 0.73% in Q3 – the first increase this year.
Further Interest Rate Increases to Come
Speaking on behalf of MT Finance, commercial director Gareth Lewis predicted a further rise in interest rates to come.
“Considering the volumes we have seen in Q3, bridging finance clearly continues to be a useful tool for homeowners and investors alike. What has been interesting is the drop-off in bridging being utilized for investment purchases, which is likely due to buyers taking stock of the current market. While it’s too early for us to really feel the impact of September’s mini-Budget, I expect this will be more visible in Q4,” he said.
“As predicted in Q2, interest rates have started to slowly rise to 0.73 percent but it is worth noting they are virtually on a par with Q3 in 2021 (0.72 percent). I would not be surprised if interest rates continue to rise, and investors remain cautious.”