The bridging loan market has witnessed an unprecedented surge in activity, reaching an all-time high in the first quarter of 2023. According to the latest data from Bridging Trends, a staggering £278.8 million in bridging loans was transacted during this period, marking a record-breaking achievement. This figure represents a substantial 30% increase compared to the previous high of £214.7 million in Q3 2022, and an enormous 68% jump from Q4 2022’s £166.3 million. These remarkable numbers underscore the growing popularity and importance of bridging finance in the current financial landscape.


Residential Homeowners Drive Bridging Loan Transactions

The surge in bridging loan transactions during Q1 2023 was primarily driven by demand from residential homeowners. Uncertainty surrounding rising interest rates and risk appetite in the mortgage market has led homeowners to seek alternative financing options to prevent chain breaks. In fact, the percentage of homeowners turning to bridging finance for this purpose nearly doubled from 15% in Q4 2022 to 25% in Q1 2023. This shift highlights the increasing reliance on bridging loans as a means to navigate the challenging real estate market and maintain property transactions in the face of evolving economic conditions.


Investor and Landlord Demand Declines

Interestingly, the Bridging Trends report revealed a significant decrease in demand from investors and landlords utilising bridging loans to purchase investment assets. In Q1 2023, this demand plummeted to a record low of 15%, down from 26% in Q4 2022. This decline suggests that landlords and property investors are adopting a cautious approach, waiting for interest rates to stabilise before committing to new investment properties. The recent rate increases have prompted them to hold off on purchasing until the market conditions become more favourable and consistent.


Rise in Regulated Bridging Demand

In contrast to the decline in investor and landlord demand, regulated bridging loans experienced a notable increase in demand. The percentage of regulated bridging loans rose from 43.8% in Q4 to 46.2% in Q1, reaching its highest share since Q1 2021. This surge can be attributed to homeowners seeking to avoid potential disruption following recent economic changes and capitalise on the favourable rates and flexibility offered by bridging finance. Homeowners have recognised the advantages of regulated bridging loans and their ability to provide stability and security amidst uncertain market conditions.


Steady Interest Rates and Lower Loan-to-Value Ratio

Throughout the first quarter of the year, average monthly interest rates for bridging loans remained steady at 0.79%. This stability reflects the cautious sentiment among lenders and the mortgage market as they navigate the unpredictable financial landscape. Despite this, there was a decrease in the average loan-to-value (LTV) ratio, dropping from 57.9% in Q4 to 54.7% in Q1. Lenders are adopting a more careful approach when issuing high LTV products, considering the current climate and aiming to mitigate risks associated with volatile market conditions.


Decline in Second Charge Bridging Loans

The demand for second charge bridging loans experienced a decline from 12.9% in Q4 2022 to 11.2% in Q1. This decrease marks the lowest percentage since Q3 2021. The decline can be attributed to homeowners capitalising on the softer property market to facilitate moves rather than seeking to raise capital against their existing properties. The rise in chain breaks has prompted homeowners to take advantage of the favourable market conditions for relocating, contributing to the decline in demand for second charge bridging loans.


Decreased Completion Time and Stable Loan Term

The average completion time for bridging loans decreased to 54 days in Q1 2023, down from 66 days reported in Q4 2022. This notable reduction represents the quickest turnaround time seen since Q1 2022, indicating the industry’s ability to handle the increased demand efficiently. Simultaneously, the average term for a bridging loan remained stable at 12 months, providing borrowers with a reasonable timeframe to fulfil their financial obligations.


Brokers Respond to Record-Breaking Bridging Figures

The record-breaking figures in the bridging loan market have not gone unnoticed among industry professionals. Andre Bartlett, director at Capital B Property Finance, expressed his thoughts on the market trends, emphasising the increase in regulated bridging requests from clients looking to downsise or prevent chain breaks. Bartlett highlighted how bridging loans can unlock equity and position clients as favourable purchasers in the property market when utilised correctly. The efficiency of processes and the return to the fundamental principles of bridging loans in the face of a slight slowdown in the property market are positive signs for industry professionals.


Shiraz Khan, bridging and commercial specialist at Hank Zarihs Associates, echoed these sentiments. He acknowledged the continued growth in the use of regulated bridging loans for chain break purposes and emphasised the importance of brokers considering the wide range of client circumstances that can benefit from such financial solutions. Khan noted that brokers new to bridging are turning to the product and related services for support and experience, thereby expanding the reach of bridging loans beyond the specialist finance sector.


Dale Jannels, managing director at Impact Specialist Finance, commented on the increasing number of brokers embracing bridging finance and offering it as a product. Jannels emphasised the importance of experience in finding solutions and successfully placing such cases. He observed a broader range of brokers seeking assistance, often coming through mortgage club and network panels, particularly in response to the growing demand for regulated bridging loans. This trend indicates that bridging finance is becoming more widely understood and accessible to brokers across the industry spectrum.


The remarkable surge in bridging loan transactions during the first quarter of 2023 highlights the growing importance of this financial tool. Residential homeowners seeking stability and flexibility in the face of economic changes have been the driving force behind this surge. While demand from investors and landlords has decreased, regulated bridging loans have experienced a significant rise. Lenders have maintained steady interest rates and adopted a cautious approach to issuing high LTV products. The industry has demonstrated its ability to handle increased demand efficiently, resulting in a decreased completion time for bridging loans. The record-breaking figures in the bridging loan market have garnered attention from industry professionals, who recognise the value of bridging loans in navigating the evolving financial landscape.