In the ever-evolving landscape of property acquisition, buyers are increasingly turning to unconventional forms of finance to complete their transactions. As uncertainty looms over rising interest rates and risk appetite in the mortgage market, the latest data from Bridging Trends reveals a notable surge in the utilisation of bridging loans.
A Record-Breaking Quarter for Bridging Loans
During the first quarter of 2023, Bridging Trends contributors facilitated an impressive £278.8m in bridging loans. This figure marks a staggering 30% increase compared to the previous record achieved in Q3 2022 (£214.7m) and an even more remarkable 68% jump from Q4 2022 (£166.3m).
Residential Homeowners Drive Bridging Loan Transactions
The primary catalyst behind the surge in bridging loan transactions during Q1 2023 was the demand from residential homeowners. The data reveals that the percentage of homeowners turning to bridging finance to prevent chain breaks nearly doubled, soaring from 15% in Q4 2022 to an impressive 25% in Q1 2023.
Decline in Demand from Investors and Landlords
Conversely, demand from investors and landlords utilising bridging loans to acquire investment assets witnessed a significant drop, hitting a record low of 15% in Q1 2023. This is a stark decline from the 26% reported in Q4 2022. The findings suggest that landlords and property investors are adopting a wait-and-see approach, holding off on purchasing new investment properties until interest rates stabilise.
Increased Regulatory Bridging Demand
Regulated bridging demand experienced an upward trajectory, rising from 43.8% in Q4 to 46.2% in Q1, reaching its highest share since Q1 2021 (47.7%). This surge can be attributed to homeowners’ desire to avoid disruption following the mini-Budget and capitalise on the favourable rates and flexibility offered by bridging loans.
Criteria Search Trends
Data from Knowledge Bank corroborated the increased demand from homeowners, as “regulated bridging” emerged as the top criteria search on their system during Q1. It was closely followed by searches for “minimum loan amount” and “maximum LTV,” indicating the importance of these factors to potential borrowers.
Steady Interest Rates and Lower Loan-to-Value Ratios
Despite the overall market instability experienced by lenders and the mortgage industry, average monthly interest rates remained steady at 0.79% throughout Q1. However, the average loan-to-value (LTV) ratio dropped from 57.9% in Q4 to 54.7% in Q1. Lenders displayed a cautious approach, exercising restraint in issuing high LTV products in the current economic climate.
Decrease in Second Charge Bridging Loan Demand
Demand for second charge bridging loans experienced a decline, dropping from 12.9% in Q4 2022 to 11.2% in Q1, the lowest figure since Q3 2021. This decrease can be attributed to an increase in chain breaks, with homeowners capitalising on the more favourable property market conditions to relocate rather than leveraging their existing properties for additional capital.
Improved Turnaround Time
The average completion time for a bridging loan witnessed a significant reduction, reaching 54 days in Q1 2023 compared to 66 days in Q4 2022. This is the fastest turnaround time recorded since Q1 2022 when it stood at 53 days. The industry has been swift in adapting to the heightened demand, streamlining processes to accommodate borrowers more efficiently. Meanwhile, the average term for a bridging loan remained consistent at 12 months.
Industry Insights and Outlook
Shiraz Khan, director at Hank Zarihs Associates, noted a rise in regulated bridging loan requests from clients looking to downsize or break property chains. These clients seek the flexibility to choose when to sell their property and avoid succumbing to market fluctuations caused by economic changes. Bartlett emphasised the unlocking of equity and the advantageous position bridging loans can offer clients when used appropriately. Furthermore, he expressed satisfaction with the improved efficiency in bridging loan processes, especially in light of the slight slowdown observed in the property market.
In conclusion, the property market has witnessed a surge in the adoption of bridging loans, particularly among residential homeowners seeking to prevent chain breaks. With increased demand, lenders and brokers are catering to the evolving needs of borrowers. As the industry continues to adapt and optimise turnaround times, the future looks promising for bridging loans, offering an alternative and flexible financing solution in the dynamic real estate landscape.
