What’s Happening in the BL Market (and Why Borrowers Are Reaping the Benefits)

As if the UK’s economic picture wasn’t already sketchy enough, its future outlook is even gloomier. The cost-of-living crisis is likely to worsen before it improves, with the Bank of England warning that inflation could go beyond 10% before the year is out.

But there is at least one positive in all the doom and gloom, at least from a bridging finance perspective; while all this is going on, the bridging loans sector is not only booming but is also offering its most competitive products in history to a growing audience of borrowers.

Application volumes and inquiry levels continue to hover at unprecedented highs as businesses and consumers alike take their businesses away from the major High Street banks. The more difficult and expensive it becomes to qualify for conventional loans or mortgages, the greater the tendency to seek unconventional alternative options.

One of which is bridging finance, which, due to its speed, flexibility, and accessibility, has skyrocketed in popularity over the past couple of years.

“This is great news, of course, particularly in the challenging economic environment,” said Vic Jannels, chief executive at The Association of Short-Term Lenders (ASTL).

“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,” added Jannels.

Housing market competition: A key driver

Gross bridging loan completions were up a full 32% (reaching £485 million) during the first six months of last year, increasing further to an impressive 52% by November. This momentum has been largely maintained throughout 2022, resulting in average bridging loan interest rates hitting a new all-time low.

All of which is playing right into the hands of prospective homebuyers, many of whom are becoming increasingly disenchanted with what is available on the High Street, if not entirely out of the running for mortgage loans, due to increasingly strict lending criteria.

Demand for affordable homes continues to outstrip supply in almost every part of the UK. For buyers looking to avoid regrettable chain-break scenarios, bridging finance is offering a fast-access lifeline. Secured against their current home, a bridging loan can be used to buy their next home outright and allow plenty of time to sell their previous home for its full market value.

In addition, property developers are turning to bridging finance to fund purchases and renovations of vacant properties across the country. As most major banks continue to classify homes in questionable condition as ‘not mortgageable’, developers are finding themselves with little choice but to explore the alternative options available.

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 helped with several 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.”

Competitive finance with flexible terms

Unsurprisingly, demand for fast-access bridging finance has triggered a major spike in product availability from a growing network of specialist lenders. Once a fairly niche field, the bridging sector has become fiercely competitive.

Covering the needs of consumers and businesses alike, there are so many lenders now fighting to get new customers on board that average interest rates have been plummeting. It is now the norm to be offered a bridging loan with a monthly interest rate in the region of 0.5% or less, having once been reserved exclusively for prestige clients.

Meanwhile, associated borrowing costs (arrangement fees, transaction fees, completion fees, etc.) have likewise been dropping for some time, if not being removed entirely by many bridging specialists.

Alongside increasingly competitive deals, the flexibility of bridging finance is also proving a big draw for prospective borrowers. Employment status, proof of income, financial position, credit score, none of the usual obstacles apply to bridging finance applications.

Bridging loans are issued primarily based on two things: the provision of assets of value to cover the costs of the loan and evidence of a viable exit strategy for timely repayment. No jumping through hoops and no need to disclose your entire life story, as remains the case on the High Street.

All of which paints a picture of a booming bridging finance sector that’s becoming increasingly attractive to borrowers from all backgrounds. And with more economic doom and gloom on the horizon, it is a trend that looks set to continue for some time to come.