Latest Bridging Trends research has revealed that consumer caution in taking on unnecessary debt amid stubbornly high inflation and mortgage interest rate rises has impacted the overall demand for bridging finance in the second quarter of 2023.
Bridging Trends contributors reported £165.7 million in bridging loan transactions – the lowest quarterly figure since Q1 2022 (£156.77 million) and a 40.6% drop from Q1’s record-breaking £278.8 million.
The effects of consecutive base rate hikes continued to further impact the bridging market, pushing the weighted average monthly interest rate on a bridging loan from 0.79% to 0.84% – the highest interest rate since Q2 2020 (0.85%).
Despite this rise borrowers are not overstretching themselves as the average loan-to-value remained comfortably under 60%, at 56.9%, an increase from 54.7% in Q1. This reluctance to overburden themselves unnecessarily was further demonstrated by ‘minimum loan amount’ replacing ‘regulated bridging’ as the top criteria search made by brokers on Knowledge Bank’s system in Q2.
Soaring interest rates and product pulls from mortgage lenders have impacted confidence in the mortgage market, causing borrowers to turn to bridging finance to complete their property purchases. In Q2, regulated bridging extended its market share from 46.2% in Q1 to 48.7% – the highest proportion since the 53% reported in Q3 2020 amid the stamp duty holiday. Furthermore, demand for bridging loans to prevent chain breaks remained the most popular use for bridging finance for the second consecutive quarter – at 24%.
Property investors and landlords returned to the market in Q2, with bridging loans for investment purchase purposes jumping from 15% in Q1 to 22% in Q2, likely due to investors and professional landlords taking advantage of a sluggish property market to purchase assets at a reduced rate.
Whilst second charge bridging loan demand dropped for the fourth quarter in a row to its lowest level since Q3 2021, decreasing from 11.2% in Q1 to 10.7% in Q2.
Pressure on the industry continued as the average bridging loan completion time jumped from 54 days in Q1 to 58 days in Q2. The average term of a bridging loan remained consistent at 12 months.
Sam O’Neill, head of bridging at Clifton Private Finance, said: “The rise in rate doesn’t come as a huge surprise but it’s good to see that it isn’t as much of a dramatic knee-jerk reaction as perhaps it could have been.
“‘Chain break’ leading the charge in loan purposes shows that despite cost, a bridging loan is often a means to an end and that the juice is worth the squeeze.
“Similarly, it’s no surprise to see investment purchases on the rise as investors (new and old) capitalising on opportunities in the marketplace often come to the surface at times of uncertainty.”
