Housing market competition drives major spike in bridging finance applications
With economic uncertainty set to remain the norm for the foreseeable future, some of the UK’s financial service sectors are faring better than others. In particular, the bridging sector continues to grow from strength to strength, as housing stock shortages grow and competition between buyers and investors intensifies.
Vic Jannels, chief executive of the Association of Short Term Lenders (ASTL), sees nothing but more positive performance for the sector going forwards.
“It’s safe to say the bridging market is in a very strong position at the moment,” he said.
“The latest ASTL lending data for the final three months of last year has revealed that completions were £1.2m for the quarter, which represents a record high and an increase of 19% on the previous quarter. This has led to another increase in loan books, which now stand at £5.08bn.”
Typically associated with established investors and landlords, bridging finance is increasingly attracting the attention of everyday households.
Matthew Arena, managing director at Brilliant Solutions, believes that the bridging finance sector is playing a major role in easing at least some of the pressure the housing sector is under.
“Bridging is performing well and has really helped with a number of key housing issues,” he said.
“With property supply being so scarce, the ability of investors to develop or refurbish property and sell quickly is driving the sector,”
“Equally, the regulated element of the business is growing as the drive to move is as high as ever and suitable property is so difficult to find,”
“This is leading to more refurbishment and also a higher tendency to pay for bridging as a chain-break solution; because there is a greater certainty of sale and a higher perceived loss if the opportunity falls through.”
Cost-effective short-term finance
Meanwhile, low monthly interest rates and increasingly competitive borrowing costs are being driven by competition on the short-term lending market.
Group sales and marketing director at Crystal Specialist Finance, Jason Berry, highlighted how there has never been a more affordable time to take out a bridging loan.
“Pricing and fees are the lowest they have ever been and, used wisely, the discerning buyer continues to apply bridging as a solution that increases their wealth,” he said.
“Bridging is still used mostly for chain breaks where buyers often rescue an already delayed property chain from collapse. We are also seeing increasing demand where bridging is used to create cash buyers,”
“For example, bridging finance raises immediate cash prior to a client selling their existing home. These buyers place themselves in a much stronger position than their rival bidders, improving negotiations against purchase price and also delivering some guaranteed speed to complete, which is undoubtedly attractive to sellers.”
Elsewhere, director of sales at Together, Sundeep Patel, predicted that the popularity of bridging finance will only continue to grow throughout 2022.
“We’ll see more homebuyers, landlords and investors looking to bridging to help them seize opportunities this year by allowing them to act with similar speed to that of a cash buyer,” he said.
“Recent reports have revealed that development exit is one of the top reasons clients take out an unregulated bridging loan, and I foresee that continuing over the next 12 months.”
“Brokers should be aware of the upcoming energy efficiency changes for landlords, which will require their rental properties to have a minimum EPC rating of C from 2025,”
“For clients who require funds to bring their properties up to the necessary standard, bridging finance could provide the ideal solution. I believe we’ll also see property investors using bridging to buy low-rated properties before completing refurbishments and refinancing onto a buy-to-let mortgage.”