Bridging loan lending has increased sharply in 2022, with property investment still the main reason for securing this type of funding.
Between the first quarter and second quarter of this year, the value of bridging loan lending increased by 13.8%, according to new data released by mortgage broker Henry Dannell. This brings the total loan amount up to £178.4m, up from £156.8m.
Furthermore, when comparing Q2 2022’s figures to the first quarter of 2021, when £144.5m was taken out, there has been a surge of 21.8%. Although these numbers are marginally behind pre-pandemic figures, when Q4 2019’s total lending amount was £180.9m, they show a strong appetite for property investment.
One of the reasons behind the popularity of bridging loans for property investment at the moment is the current average completion time in the UK, which is around 57 days. This has risen by four days since Q1, and by 10 days compared with this time last year.
Interest rates are another factor, according to the report from Henry Dannell. Deposits on property investment purchases are slightly lower than usual, with the current average loan-to-value currently 56.1% for bridging loans – up by 1.6% since Q1, and by 1.2% since last year.
Popular way to secure property investment
Almost a quarter (24%) of those who took out bridging loans in the second quarter of this year, according to Henry Dannell’s data, did so to fund a property investment.
Broken chains were another key reason, accounting for 21% of all applications. A further 13% took out bridging loans for properties that needed significant renovation.
Geoff Garrett, director of Henry Dannell, said: “An increase in bridging loans does not signify that people are struggling financially. Such loans are taken in order to fund major purchases or investments but can only be granted to people who can prove they have larger, longer-term loans coming their way, such as a mortgage.
“Instead, an increase in bridging loan totals indicates that the systems in place are struggling to keep up with demand and can’t match the desired pace of buyers and sellers. The housing market, for example, is moving more slowly than it did a year ago, even two and three years ago.
“At the same time, buyer demand is extraordinarily high and activity is through the roof. This causes delays in the conveyancing and buying process which, in turn, increases the need for bridging loans.
“However, with the cost of living and interest rates rising so rapidly, one has to expect to see a slight drop off in buyer demand and, therefore, a decline in bridge financing over the next year or so.”
Bridging loans: key information
A bridging loan is traditionally a type of borrowing that can be secured to bridge the gap when buying a property. When it comes to property investment, this could be needed if the seller wants to make a new investment before an old one is sold, for example.
It can be an effective way of freeing up an investor to seize an opportunity when an ideal property prospect arises, without having to wait to secure a mortgage on it if the funds aren’t ready.
It can also help when there is a broken chain, such as your sale falling through while you are progressing with your next purchase. A short-term loan such as a bridging loan can be the best option to ensure you secure the next property investment.
A bridging loan can also be used to help with the cost of renovating a property. It can be difficult to get a traditional mortgage if a property is uninhabitable when it is purchased, so a bridging loan can help to pay for the renovation until you are able to take out a mainstream buy-to-let mortgage.
As a downside, this type of finance can be more expensive than a normal mortgage because of its short-term nature, as well as set-up fees, so it is important to seek advice on the best type of loan for your circumstances.
