There has been an increase in the number of property buyers turning to less conventional forms of finance in order to complete acquisitions, as uncertainty surrounding rising interest rates and risk appetite in the mortgage market persists, according to the latest Bridging Trends data.

Bridging Trends contributors transacted a record-breaking £278.8m in bridging loans during the first quarter of 2023 – a 30% increase on the previous record (£214.7m in Q3, 2022) and a 68% jump on Q4 2022 (£166.3m).

Demand from residential homeowners was the main driver of bridging loan transactions in the first quarter of 2023. The percentage of homeowners turning to bridging finance to prevent chain breaks nearly doubled in Q1, increasing from 15% in Q4 2022 to 25% in Q1 2023.

Meanwhile, demand from investors and landlords using bridging loans to purchase investment assets plummeted to a new record low of 15% in Q1 2023 – down from 26% in Q4 2022. This suggests that in the wake of recent rate increases, landlords and property investors are waiting until interest rates become more consistent before they purchase new investment properties.

Regulated bridging demand rose from 43.8% in Q4 to 46.2% in Q1, its highest share since Q1 2021 (47.7%), likely due to homeowners wanting to avoid post-mini-Budget disruption and take advantage of bridging’s rates and flexibility.

Knowledge Bank’s data reflected the increased demand from homeowners, as ‘regulated bridging’ was the top criteria search on their system in Q1, followed by ‘minimum loan amount’ and ‘maximum LTV’ in third.

Q1 saw average monthly interest rates remain steady at 0.79%, reflecting the instability felt by lenders and the mortgage market. Despite this, the average loan-to-value dropped from 57.9% in Q4 to 54.7% in Q1. This could be attributed to lenders taking a cautious approach to issuing high LTV products in the current climate.

Demand for second charge bridging loans decreased from 12.9% in Q4 2022 to 11.2% in Q1, the lowest since Q3 2021. This could be attributed to the rise in chain breaks and homeowners taking advantage of the softer property market to move, rather than raising capital on their current properties.

The average completion time of a bridging loan fell to 54 days in Q1 2023, down from 66 days reported in Q4 2022 – the quickest seen since Q1 2022’s 53 days – as the industry handles the increased demand. The average term for a bridging loan remained at 12 months.

Matthew Dilks, bridging and commercial specialist at Clever Lending, commented: “It’s no surprise to see such continued growth in the use of regulated bridging for chain break purposes. We are seeing many brokers new to bridging who are using the product and our services for support, experience, and, for some, to do the advice also.

“We’ve also experienced a notable increase in enquiries for regulated bridging from brokers with clients wishing to downsize, so it’s important that brokers consider the wider range of client circumstances such a product can help with.”

Andre Bartlett, director at Capital B Property Finance, added: “We’ve certainly seen an increase in regulated bridging requests from clients looking to downsize or chain break, so they can choose when to sell their property and not panic whilst the market reacted to the changes in the economy.

“More and more clients are realising bridging loans can unlock equity and put them as the best purchaser on a new property if used correctly. With the slight slowdown in the property market, it is good to see that processes are getting quicker and returning to the way bridging loans should be.”