But rising competition and delays remain a challenge
The majority of lenders and brokers in bridging finance expect the market to grow over the next year, results of the inaugural Interpath and BDLA UK Bridging Market Survey have shown.
However, respondents warned that the increasing time lag in completing loans was causing delays in executing transactions and raised fears over intense competition for loans.
The Interpath Bridging Market Survey monitors trends in the UK bridging finance market and collects insights from lenders, brokers, and other specialists. The survey was conducted in conjunction with The Bridging & Development Lenders Association (BDLA), formerly known as ASTL.
The survey found that 62% of respondents expected annual origination volumes to increase. This was supported by a strong expectation from 92% of respondents that institutional funding would remain available at current levels or increase over the next year.
There was consensus that there would be no change in credit quality or the cost of origination. Respondents also agreed that average monthly interest rates on loans would fall, a sentiment shared by 62% of respondents and regarded as a key market driver.
However, caution remains as 51% of respondents reported that the average days to complete a loan was lengthening, reflecting feedback that a slow legal process is a key challenge causing delays. The survey also found that 92% of participants expected the level of foreclosures to remain the same or increase.
The UK Bridging Market Survey also constructed a profile of bridging finance loans, revealing that 51% of respondents cited the average monthly interest rate for loans from the past 12 months to be 1% to 1.25%, with 8% suggesting loans priced above 1.25%. This indicated that prices have been trending upwards.
Regarding average loan-to-value (LTV), 65% to 70% was the most common bracket, followed by 60% to 65%, while average loan size appears to have increased from previous sentiment of £300,000 to £400,000 to more than £600,000.
The majority of respondents, or 57%, selected nine to 12 months as the average loan term, consistent with the short-term nature of the market.
Refurbishment was the most popular reason for borrowers to obtain a bridging loan, with downsizing the least.
Survey participants also identified the biggest challenges facing their business over the next 12 months. Increased competition was the most common challenge, cited by 60% of respondents, followed by a decline in property sales volumes and time to sell. Declining property values were the third most common challenge.
“The next 12 to 18 months will be pivotal for the bridging finance market,” said Nick Parkhouse (pictured left), managing director and head of financial services deal advisory at Interpath. “The industry expects growth, more institutional funding, and a fall in interest rates, but there are still some real drags on activity, not least in the delays caused by legal processes on the time to execute a transaction. While credit quality will increase, the results show us that there is still concern over defaults with fears over foreclosures remaining front of mind.
“One thing is certain – there will be more competition, which has taken over as one of the biggest concerns in the industry. As demand for financing for arrears builds, propelled by a decline in property sales volume and increase in time to sell, we’ll see more capital finding its way into an already busy and fragmented market and spark an intense fight for loans, including new entrants. The rest of 2024 is set to be a lively period for bridging finance.”
Vic Jannels (pictured right), chief executive of the Bridging & Development Lenders Association, added: “It’s clear that bridging is an increasingly vital cog in the workings of the overall UK mortgage and property market. Latest data from the BDLA shows that bridging loan books hit a record high of £8.1 billion in Q1 2024, and this survey confirms the level of optimism for ongoing growth in the market.
“There will be challenges, of course, but by maintaining high standards of transparency, professionalism and customer focus, we will be well placed to meet the growing demand from both customers and institutional funders.”
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