The bridging sector is certainly off to a flying start in 2023. This was apparent in the latest Bridging Trends report which saw bridging lenders transact a record-breaking £278.8 million worth of bridging loans during the first quarter of 2023. This represented a whopping 30% increase on the previous record (£214.7 million in Q3 2022) and a 68% jump on Q4 2022 (£166.3 million).
While this comes as no surprise to a packager who has been heavily involved in the bridging finance sector for well over 20 years, it does represent an impressive and highly significant amount which firmly establishes this sector as the one to watch over the rest of 2023 and beyond.
As outlined in the Bridging Trends data, demand in Q1 was largely driven by residential homeowners as uncertainty surrounding rising interest rates and risk appetite in the mortgage market persisted. The percentage of homeowners turning to bridging finance to prevent chain breaks was reported to have nearly doubled in Q1, increasing from 15% in Q4 2022 to 25% in Q1 2023.
This rise in demand has not only seen the number of short-term finance related enquires grow but these enquires are coming from a number of new introducers, many of whom may not have always viewed this product type as a reputable, viable or accessible option for their clients. And this is a highly encouraging trend which reflects the ongoing educational work undertaken by a host of packagers, networks and lenders. Not to mention the constructive coverage throughout our excellent trade press over the years which has helped elevate these perceptions and served to highlight the available options and solutions on offer for the intermediary market and their clients.
This evolution of the short-term finance sector also shone through in the sixth UK bridging market study from the EY Financial Services Corporate Finance team which tracks developments in the UK bridging finance market with the goal of bringing insight, transparency and support to the external understanding of this market.
The 2023 study outlined that mortgage delays have increased as a reason borrowers obtain loans, indicating that the slowdown in the mortgage market has been a source of increased demand for bridging loans. 39% of respondents ranked this option as one of their top two reasons for customer borrowing, compared to 20% in the 2022 survey.
It also highlighted that brokers remain an important primary channel for bridging loan origination, with 57% of respondents (lenders) choosing “independent brokers” as the most important channel (a total of 95% giving an importance rating of 3 or above).
In addition, the ability to secure low cost funding has replaced speed of execution in the top three list of most important capabilities cited by bridging lenders to be successful in the UK market. The reputation of the lender and the quality of relationship management were also cited as critical success factors in this year’s survey, which was largely consistent with prior years.
Shifting market dynamics will always result in differing demands from borrowers and lending partners. This is where the importance attached to established relationships with an array of short-term finance providers really comes to the fore, alongside an in-depth understanding of individual lending propositions, policy and criteria across the sector.
This is why more advisers who may be less experienced in writing short-term business, and even those who are well-versed in this product arena, are turning to trusted packaging partners to better service their clients specialist needs.
Donna Wells, Director at Envelop