Bridging loans increase buyer demand outstrips supply | moneyfacts.co.uk

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Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 28/05/2021
Data  from the Association of Short-Term Lenders (ASTL) shows the demand from consumers and businesses to get a bridging loan in the UK has increased at the start of 2021.  Applications have exceeded pre pandemic levels by just over a quarter and the value of these was up 18% comparing Q1 2021 to the same period in 2020.  The number of completions in Q1 was also up by just over 10% comparing Q1 2021 to Q1 2020. 
However, comparing the number of completions in Q4 2020 to the start of 2021 shows a reduction of 1.9% in completions. This may be due to the heated property market marginally slowing down completion times due to sheer levels of demand and because of multiple applications from brokers to bridging lenders. 
Vic Jannels CEO of the ASTL said “The value of completions remains relatively steady, which means we are seeing an increasing number of bridging loan applications that are not progressing through to completions.
This is likely to be a combination of more rigorous underwriting by lenders, brokers hedging their bets by submitting multiple applications to multiple lenders and some cases where bridging is no longer required by the time of the completion date.”

 

Why is demand for bridging loans increasing?

The entire UK property market is currently seeing huge demand from buyers and the NAEA Propertymark has reported there to be 16 buyers for each property currently on the market. The number of properties achieving over the asking price reached 32% in April 2021, smashing the previous high of 19% in May 2014. Demand has skyrocketed as buyers seek to make savings through the stamp duty holiday. The reduced rate of stamp duty is in force for completions up to 30 September 2021. As a result, the demand for property finance, such as mortgages, secured loans and bridging loans is also increasing.

Calculate the cost of stamp duty.

Bridging finance is helping buyers in this hectic market in three ways.

The first is its speed to completion, bridging loans are fast, taking weeks not months like a mortgage to complete. Those needing to meet the stamp duty deadline to be certain of a saving can do so using bridging finance (although interest costs are higher than a mortgage). Auction purchases also require speed and according to Bridging Trends 6% of all bridging loans were for auction properties in Q1 2021.
The second reason to use a bridging loan is to stop a chain collapsing and this was the most popular use of bridging in Q1 2021 again based on data from Bridging Trends. A buyer can take a bridging loan to buy their next property while waiting to complete the sale on the original property. This can be risky because if the sale falls through, the buyer is left with finance to pay on two properties for longer than expected.
The third reason to use a bridging loan is to renovate a property for later sale or for rental. Some types of work and property condition may be outside of a traditional mortgage lenders criteria, while a bridging lender is usually happy to accept development projects if there is a clear plan to repay the debt before the term ends. 33% of bridging loans in Q1 2021 based on Bridging Trends data were for business purposes or investments.

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