Appetite for bridging expected to grow through next year
Increased demand in the commercial sector has driven quarterly and annual growth in the UK’s bridging finance market, data analysis from Excellion Capital has shown.
The debt advisory and investment firm looked at market trends from Q3 2023 to Q3 2024 and revealed that bridging lending continues to expand, with expectations for further growth.
According to Excellion’s analysis of data from the Bridging Trends initiative, the total estimated value of bridging finance completions in the UK reached £1.79 billion in Q3 2024. This represents a 2.9% increase from the previous quarter and a notable 27.9% year-on-year rise.
Investment purchases have emerged as the primary driver of bridging loan demand, accounting for 24% of loans in Q3 2024. This segment saw a 6% quarterly increase and a 5% annual rise, underscoring robust activity in the commercial real estate market.
Other significant uses of bridging finance include chain breaks, which accounted for 17% of lending, and regulated refinancing, making up 14%. Notably, regulated refinancing experienced the largest quarterly growth, increasing by 8%.
Unregulated refinancing also saw gains, representing 13% of bridging finance in Q3 2024 and posting a 7% annual increase.
The rise in bridging lending has continued despite relatively stable interest rates over the past year. The average interest rate on a bridging loan was 0.92% in Q3 2024, a marginal annual decrease of 0.02%. This stability is largely attributed to the Bank of England’s consistent base rate, which held at 5.25% for most of the year before a reduction to 5.00% in Q3.
With the base rate recently lowered to 4.75%, Excellion Capital anticipates that bridging finance may become even more attractive, potentially driving further lending growth in Q4.
Meanwhile, data on daily SONIA rates shows a drop from an average of 5.20% in July to 4.95% in September 2024. The average SONIA rate for Q3 2024 was 5.03%, down 0.06% from the same period last year. Swap rates also trended downward, with the one-year swap rate averaging 4.59% in Q3 2024, a 1.17% decline from the previous year. The five-year swap rate showed a similar trend, falling to an average of 5.00% in Q3, down 1.05% annually.
“Any sign that the appetite for bridging finance is increasing indicates that there’s a growing confidence in UK investment and development,” said Ashley Marks (pictured), head of real estate at Excellion Capital. “It suggests that developers and backers alike feel secure that issuing short-term loans will help development projects get over the line and loans will be successfully repaid. If market confidence was low, people would consider the risk of bridging too high, and numbers would be declining.
“We fully expect the appetite for bridging to keep growing over the coming months and into next year. SONIA and swap rates are already showing signs of coming down, which means interest rates on bridge loans will likely follow suit. This can be teamed with the recent reduction in base rates to 4.75%, and we are left with little doubt that when Q4 figures are published, they’ll show yet another sharp uptick in lending totals.”
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