More property investors turn to bridging finance as rates fall

There has been an increase in the number of property investors turning to less conventional forms of finance in order to complete acquisitions, as bridging rates continue to fall to historical lows, according to the latest Bridging Trends data.

Contributor gross bridging lending increased for the third consecutive quarter in Q2 2022, the latest figures show, with Bridging Trends contributors transacting a total of £178.4 million in bridging loans during the second quarter of the year – 22% more than the £146.5m recorded in Q2 2021, and up 14% on the £156.8m recorded in the previous quarter.

Purchasing an investment property remained the most popular use of a bridging loan in Q2 – at 24% of total contributor transactions, falling slightly from 26% in the previous quarter. The second most popular use was to “chain break”– accounting for 21% of total transactions in Q2.

Continued shortage of stock means there has been no let-up in terms of pressure on buyers. With several purchasers competing for the same property in some instances, there is a need to move quickly.

Those who are not cash buyers are putting themselves ahead of the competition by turning to bridging finance for a rapid cash injection; further highlighted by the increase in bridging loans for auction purchases – doubling from 2% in Q1 to 4% in Q2.

However, regulated refinance saw the greatest shift in demand in Q2, jumping to 10% of total transactions from 5% in the previous quarter. This shift could indicate that more homeowners looked to enhance their properties in Q2, rather than move and compete in a busy market.

The fast-paced, busy property market has increased the appetite for bridging and has led to greater competition between lenders. Lender competition continued to drive bridging rates down to record lows in Q2, with the average monthly interest rate falling to 0.69% – down from the previous record low reported in Q1 (0.71%). Loan-to-values edged up slightly from 54.5% in Q1 to 56.1% in Q2.

The pressure to move quickly is not just being felt by buyers. Industry professionals, such as valuers and conveyancers, have also seen an increase in demand for their services from buyers working to tight deadlines. It is no surprise that average loan completion time figures rose to 57 days – up from 53 days in Q1.

The split between regulated and non-regulated bridging loans remained consistent with the previous quarter with regulated loans accounting for 43.3% of the market, down from 43.9% in Q1.

According to data supplied by Knowledge Bank, the top criteria search made by bridging finance brokers during Q2 remained unchanged from the previous quarter. ‘Regulated bridging’ was top, followed by ‘minimum loan amount’.

Meanwhile, second-charge loans accounted for an average of 16% of total market volume in Q2 – up from 12% in Q1.

The average term of a bridging loan remained at 12 months.

Stephen Watts, bridging and development finance specialist at Brightstar, said: “It’s no surprise to see 83% of Q2’s bridging loans being on a first-charge basis as the lending options for stand-alone second charges are fewer than they once were.

“It is also not surprising to see a 14% rise in bridging finance activity. The demand for property currently outweighs the number of suitable properties for sale to home buyers and investors, therefore, bridging finance is being increasingly sought to enable buyers to put themselves ahead of their competition. With recent statistics confirming, on average, that there are up to 29 potential buyers for each property on the market for sale, it’s not a shock to see such an increase in requirement for fast, short-term bridging finance.”

Andre Bartlett, director of Capital B Property Finance, commented: “As always, the Bridging Trends data shows exactly what is happening in the industry. It is no surprise to see that volume has increased by 14% and in particular, regulated refinancing showing the greatest uplift. There may now be some pressure on lenders to increase pricing, but we must remember rates are at their lowest and bridging still represents excellent value for the right client.

“Lenders seem busier than ever and completion timescales are slipping; I feel this is a combination of staff shortages and the uplift in business. The industry is still well placed to provide much-needed assistance to clients over, what could be, some interesting times ahead.”

The bridging market has been fiercely competitive in recent times which has led to rate reductions, and bespoke pricing being offered. This trend has enabled lenders to create a competitive edge to try and gain market share. However, we are highly unlikely to continue seeing this trend in the coming months, according to Gareth Lewis, commercial director of MT Finance.

He said: “Base rate increases and Swap rate volatility have been ever present in 2022, but their impact has yet to be truly seen in the bridging sector, as it has throughout the mortgage market. As pressure continues to build and funding costs increase, I expect to see the start of movement in our sector in the coming months.”

 

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