New analysis highlights trends in bridging loan usage over the past year
Refurbishment has continued to be the primary driver for bridging loans over the past year, although its share has declined slightly, according to new analysis by specialist lender Octane Capital.
The company’s review of data from the EY Bridging Report highlights how borrowers have used bridging loans since 2021. The analysis revealed that in 2023, 33% of borrowers cited refurbishment as the main reason for seeking bridging finance, followed by auction purchases (19%) and mortgage delays (16%). While refurbishment remains the most common use, its popularity has declined from 35% in 2022 and 50% in 2021.
But the lender anticipates that the downward trend in refurbishment-related bridging loans could reverse this year, as borrowing costs decline. The Bank of England reduced the base rate from 4.75% to 4.5% in February, and with some members of the Monetary Policy Committee advocating for deeper cuts, further reductions are expected. Lower interest rates are likely to make bridging loans more affordable, which could drive increased activity.
Currently, Octane Capital estimates that a £200,000 refurbishment loan costs approximately £26,000 when factoring in interest rates and fees. Although the base rate was held at 4.5% in March, the expectation is that rates will gradually decrease, potentially lowering the overall cost of bridging finance.
Landlords may also be motivated to utilise bridging loans to upgrade their properties to meet stricter energy efficiency requirements. The Labour Party has proposed that all privately rented homes must achieve an energy performance certificate (EPC) rating of ‘C’ by 2030 to be deemed lettable.
“Bridging is a flexible form of finance, which is reflected by the popularity of its utilisation for refurbishment,” said Jonathan Samuels (pictured), chief executive of Octane Capital. “While this popularity has reduced somewhat in recent years, bridging could come into its own in the coming months, as borrowing costs fall and improving EPCs become more of a priority for UK investors.
“Not only is there the 2030 deadline for improving EPCs to ‘C’, there is a strong case for lowering the cost of energy bills at a time when costs have skyrocketed.”
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