However, demand for regulated bridging increases
Bridging loan transactions fell to £165.7 million in the second quarter, recording the quietest three months since the first quarter of 2022, the latest Bridging Trends data has revealed.
The figure was also significantly lower than the previous quarter’s record-breaking £278.8 million in bridging loan transactions – a whopping 40.6% drop.
Bridging Trends is a quarterly report developed by short-term finance lender MT Finance as a method for monitoring the latest trends in short-term bridging finance lending in the UK.
It combines bridging loan completions from several specialist finance packagers such as 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.
The report noted that consumers were becoming more cautious in taking on unnecessary debt amid stubbornly high inflation and mortgage interest rate rises, and these impacted the overall demand for bridging finance in Q2.
The effects of consecutive base rate hikes continued to further impact the bridging market, the report added, pushing the weighted average monthly interest rate on a bridging loan from 0.79% to 0.84% – the highest interest rate since Q2 2020. Despite this rise, borrowers were not overstretching themselves as the average loan-to-value remained under 60%, at 56.9%.
The latest #bridgingtrends data is live. Here are the key facts from Q2:
— Bridging Trends (@BridgingTrends) August 9, 2023
📉 Contributor lending falls to £165.7m
🏠 Investment purchase demand recovers
🔥 Regulated transactions hit three-year high
View the full infographic. 👉 https://t.co/pJprMDwJFJ pic.twitter.com/k7kBDedCW7
Meanwhile, soaring interest rates and product pulls from mortgage lenders have impacted confidence in the mortgage market, leading borrowers to turn to bridging finance to complete their property purchases.
Regulated bridging extended its market share from 46.2% in Q1 to 48.7% in Q2. Demand for bridging loans to prevent chain breaks also remained the most popular use for bridging finance for the second consecutive quarter at 24%.
Bridging loans for investment purchase purposes jumped from 15% in Q1 to 22% in Q2, likely due to investors and professional landlords taking advantage of a sluggish property market to purchase assets at a reduced rate.
However, demand for second charge bridging loan dropped for the fourth quarter in a row to its lowest level since Q3 2021, decreasing from 11.2% in Q1 to 10.7% in Q2.
The average bridging loan completion time jumped from 54 days in Q1 to 58 days in Q2, while the average term of a bridging loan remained consistent at 12 months.
“Although these latest figures might seem gloomy in terms of lending volumes in Q2, it feels far from it in terms of enquiries, although it is definitely harder and more time-consuming to get some cases placed and funded with interest rates where they are currently,” commented Dale Jannels, managing director at Impact Specialist Finance.
“Despite this, what we are seeing is more motivated borrowers and fewer ‘tyre kickers’, which leads me to suspect a degree of pent-up demand is there and is ready to be unleashed once economic conditions become more favourable.”
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