UK Bridging Market Shows No Sign of Slowing Down

Recent figures show that the bridging finance industry in the UK shows no signs of slowing down. 

In a recent interview, ASTL CEO Vic Jannels emphasised the sector’s strong performance and potential for sustainable growth, saying ““The short term lending market has ended the year strongly, with a fairly large increase in loans written and only a small reduction in the level of applications compared to last quarter.

“However, compared to the same period the previous year, application volumes were more than 25% higher in Q4 2023, completions increased by more than 18% and loan books grew by over 16%. Member loan books have now surpassed £7bn for the thirds consecutive quarter, setting a new record.

“We believe there is great potential for further, sustainable growth in the market and initiatives such as the Certified Practitioner in Specialist Property Finance (CPSP) will play a big role in helping to achieve this.”

Bridging finance is a type of short-term loan used to “bridge” the gap between the immediate need for funds and the availability of longer-term financing or the sale of an asset. 

These loans are typically used in property transactions, where buyers need quick access to funds to secure a property while waiting for their current property to sell or for more permanent financing to be arranged.

How Does Bridging Finance Work?

Bridging loans are designed to be fast and flexible, offering a quick turnaround for borrowers. They can be secured against residential or commercial properties, and the amount lent is typically based on the value of the property used as collateral. 

Bridging finance can be arranged in a matter of days, making it an attractive option for buyers facing time-sensitive opportunities or challenges.

The key aspects of bridging finance include:

1. Loan-to-Value Ratio (LTV)

The LTV ratio determines the maximum loan amount relative to the value of the collateral. For example, if a property is valued at £1 million and the LTV is 60%, the maximum loan amount would be £600,000. According to recent data, the average LTV for bridging loans in the UK has increased to 58.7% in the fourth quarter of 2023, up from 57.7% in the previous quarter. (Source: MT Finance)

2. Term Length

Bridging loans are short-term by nature, typically ranging from a few months to a year. The expectation is that the borrower will repay the loan once their long-term financing is secured or their property is sold.

3. Interest Rates and Fees

Bridging loans often come with higher interest rates and fees compared to traditional mortgages, reflecting the risk and the speed of the transaction. Borrowers should carefully consider these costs when evaluating their options.

How Many People in the UK Use Bridging Finance?

Bridging finance has seen significant growth in the UK, particularly in the property market. The latest figures from the Association of Short Term Lenders (ASTL) highlight this trend. In the fourth quarter of 2023, bridging loan completions rose by 18.4% compared to the third quarter, reaching a total of £1.69 billion. (Source: Lending Expert)

The total value of loan books increased by 4.2% during the same period, setting a new record of £7.6 billion. This marks a 16% increase from the same period the previous year.

Despite a slight decline in applications in the last quarter of 2023 (down by 1.1% from the previous quarter), the number of applications remained 25% higher compared to the same quarter in 2022, totaling £9.6 billion. 

This indicates a robust demand for bridging finance, driven by various factors including the competitive real estate market and the need for quick financial solutions.

Future Prospects for Bridging Finance

Bridging finance serves as a vital tool in the UK property market, providing quick, flexible funding solutions for buyers and investors. Its rising popularity and growth reflect its importance in addressing the financial needs of the property market.