Bridging finance has come a long way over the years from a demand, perception and proficiency perspective. In terms of a present day overview, this is a sector which continues to generate huge amounts of interest amongst homeowners, investors, developers, landlords and an intermediary community which has become far more switched on to the potential benefits attached to short-term finance and in identifying the scenarios where it can help support a range of borrowing requirements.
But how do certain elements within this compare with years gone by?
On seeing the latest Bridging Trends data, I thought it might be worth taking a little trip back in time to compare some facts and figures within this to help outline how and where the sector had changed, if at all, from the initial report which was first introduced in Q1 2015.
The most obvious difference came in the form of gross lending figures as they hit £196.2 million in Q1 2024 compared to the reported £80.47 million in Q1 2015, figures which largely speak for themselves.
Digging a little deeper.
The average monthly interest rate is now slightly lower but only just…
Funding costs have fluctuated over the past 9 years from a high point of 0.95% in 2015, falling to 0.69% in Q2 2022. A staggered drop which was largely due to historically low financing costs and a highly active lending arena. However, since the mini budget in September 2022, the average rate for bridging finance has increased in line with overall property finance. As we currently stand, the average rate in Q1 2024 was 0.89% per month, although this was lower than the 0.91% reported in Q4 2023.
The average LTV has risen by 9.9% – In Q1 2015, the average LTV for a bridging loan stood at 50.1%, whereas in Q1 2024 this was suggested to be 60%.
We have experienced a significant uplift in the number and breadth of bridging providers over the years which has created an increasingly competitive marketplace. This competition has helped increase LTV offerings, resulted in superior service standards, greater product innovation and kept pricing relatively low. With house prices rising over this period, there is now more appetite and opportunity for developers and property investors with the additional benefit of lower cost finance.
The average completion time has seen a 70% or 24-day rise
The average completion time has consistently grown over the past 9 years from 34 days in Q1 2015 to 58 days in Q1 2024. There are number of contributing factors to this. The first being that the plethora of new entrants to the sector who – on the plus side – have helped grow the market and keep pricing competitive have different but who also have vastly different approaches and criteria which may have served to lengthen this process at times.
Increased market complexity when it comes to funding lines and methodology may have also impacted some processing times, especially if third party approvals are required on certain types of transaction. As the complexities of the client application structure and transactions have diversified, this has brought additional checks; elongated processes and introduced a need for more in-depth property ownership reports.
The increase in clients using bridging finance who traditionally wouldn’t have needed the product, combined with the use of more traditional solicitors who are not overly familiar with bridging requirements, have also elongated this process.
A final area to consider is the time taken around the instruction and completion of valuation reports as this continues to rise due to fewer specialist surveying firms being able to service these needs as a result of increasing PI costs.
These factors are all contributing in their own unique ways, although it’s worth noting that, here at Envelop, our average completion time in 2023 was 29.3 days, meaning we’re almost twice as quick as the current average transaction. Which does illustrate that it can still be done!
31.5 regulated v 68.5% unregulated business in Q1 2015 compared to 51% regulated v 49% unregulated business in Q1 2014.
This represents a substantial shift which has been driven by housing market growth and a sustained supply gap, the result being that more property chains are breaking down, with those correctly priced properties requiring a speedier completion.
An aging population has also served to drive an uplift in regulated bridging finance, with the older generations releasing equity and downsizing. In addition, a rising number of interest-only mortgages maturities have forced many homeowners to move property and extend terms while the property sale is taking place. Growing numbers have also used second charge lending to undertake home improvements in order to maximise sale prices.
Having operated in the bridging world for well over 20 years, we have seen huge change over this period but none more so than during the past 9 years where we have witnessed an increasingly voracious appetite for this form of finance from a wider variety of borrowers. So much so that it is now considered a mainstream product amongst our specialist lending offering, and long may this positive progression continue.
Donna Francis, Managing Director at Envelop
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