Rise in bridging loans primarily driven by borrowers seeking to prevent chain breaks
Bridging loan activity in the UK totalled £201.8 million in Q2 2024, marking a 2.9% increase from £196.2 million in the previous quarter, according to the latest Bridging Trends from MT Finance.
This is the highest Q2 figure recorded since the data series began in 2015, with the rise in bridging loans primarily attributed to borrowers seeking to prevent chain breaks, which accounted for 23% of all loans, up from 19% in Q1. The increase is also driven by ongoing conveyancing delays in the mainstream mortgage market.
Additionally, auction finance saw the most significant rise in demand, jumping from 9% in Q1 to 14% in Q2, as more buyers capitalised on undervalued properties amid a relatively flat housing market.
The increased demand for bridging loans, particularly for chain break prevention and auction purchases, coincided with a reduction in average processing times, which fell from 58 days in Q1 to 52 days in Q2.
Despite the overall increase in bridging activity, the proportion of loans used for purchasing investment assets declined from 21% in Q1 to 18% in Q2. This drop reflects uncertainty in the market, driven by sustained high interest rates and anticipation of an early general election. Nevertheless, unregulated bridging loans rose from 49% in Q1 to 54.2% in Q2, indicating a shift among landlords and investors adapting to the current economic climate.
The Q2 2024 #bridgingtrends data is live. Here’s the key facts:
— Bridging Trends (@BridgingTrends) August 13, 2024
🤝Contributor gross lending hits £201.8m, up 2.9% from Q1
🏠Preventing a chain break most popular use of bridging finance
🏚️Auction finance sees biggest increase
View more here. 👉 https://t.co/MAenT7D86L pic.twitter.com/knf7plvmIs
Data from Knowledge Bank highlighted that regulated bridging remained the top search criteria among UK finance brokers in Q2, underscoring its continued relevance for borrowers.
Bridging Trends data also showed a sharp fall in the proportion of second charge bridging loans from 21.3% in Q1 to 11.6% in Q2, as borrowers focused more on property purchases rather than equity release. This decrease in second charge loans may have contributed to the slight drop in average monthly interest rates, which declined from 0.89% in Q1 to 0.86% in Q2.
Average loan-to-value (LTV) ratios also experienced a slight decrease, falling from 60% in Q1 to 59.3% in Q2. Meanwhile, the average loan term remained steady at 12 months for the 11th consecutive quarter.
“With the property market relatively stagnant in Q2, specialist lending continued to offer a flexible approach to underwriting that further increased bridging’s attractiveness,” said Gareth Lewis (pictured), managing director at MT Finance. “This can be seen in the fact that this quarter’s contributor gross lending was a record high and is testament to the sector’s versatility.
“I am encouraged to see the uptick in unregulated lending and am hopeful that this marks a turning point for landlords and investors who have been hit so hard in recent years. That completion time dropped by six days from 58 to 52 indicates how hard everyone is working to get these deals over the line.”
Bridging Trends compiles data from several specialist finance packagers, including AFIG, Brightstar Financial, Capital B, Clever Lending, Clifton Private Finance, Complete FS, Enness, Impact Specialist Finance, LDNfinance, Optimum Commercial, Sirius Finance, and UK Property Finance.
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