The latest market analysis by bridging finance specialists, Apex Bridging, reveals that unregulated finance has driven a +2.4% quarterly increase in bridging loans in the UK.
Apex Bridging has analysed trends in the UK bridging loan market* to see how it has changed over the last quarter, from the amount of money being borrowed and the split between regulated and unregulated finance, through to what exactly the bridging loans are being used for, from investment purchases to surviving broken home buying chains.
What are regulated and unregulated bridging loans?
A bridging loan is a short-term loan that is typically used to bridge the gap between the time at which something needs to be purchased and the time in which the required funds will become available.
Regulated bridging loans are used by homeowners who want to spend money on their own home – perhaps covering an onward purchase before the funds from the sale of their current home have become available to them. The essential rule is that the borrower lives in the property the loan relates to.
Conversely, unregulated bridging loans are typically used by property investors, developers, and landlords. In other words, people who do not live in the property the loan relates to.
Quarterly bridging change
In Q4 2023, a total of £195.2 million was borrowed through bridging loans. This represents a quarterly increase of +2.4% compared to Q3’s total of £191 million.
The average first charge for a bridging loan has reduced by -1.6% to sit at 88.4%, while the average second charge has increased by +1.6% to sit at 11.6%.
Meanwhile, the average monthly interest rate on a bridging loan has fallen by -0.03% to sit at 0.91%, and the average application processing time now takes 58 days after a quarterly decrease of -4 days.
The +2.4% increase in the amount of money being borrowed through bridging is being driven by unregulated finance, not regulated finance.
This is obvious due to the fact that in Q4 2023, regulated finance accounted for 44.2% of bridging loans, marking a quarterly decline of -1.9% compared to Q3’s share of 46.1%.
At the same time, unregulated finance saw its proportion increase by +1.9% to reach 55.8% compared to Q3’s market share of 53.9%.
This dominance of unregulated finance tells us that more loans are going to investors than homeowners.
This is illustrated by the fact that ‘investment purchase’ accounts for 24% of all bridging loans in Q4 2023 having increased by +5% since Q3.
‘Heavy refurbishment’ loans have also increased by +5% to account for 12% of all loans in Q4.
‘Chain breaks’, which are firmly set in the regulated finance category, remain the second-most common reason for bridging, accounting as they do for 16% of all loans, but this marks the largest quarterly decline of -6% compared to Q3 when it accounted for 22% of the market.
Managing Director of Apex Bridging, Chris Hodgkinson said, “A combination of higher interest rates, the high cost of living and a slower residential property market have all acted as a deterrent to residential homeowners and buyers, both with respect to their appetites to actually move house, as well as their desire to stomach the additional cost of a bridging loan when doing so.
But this slack is being picked up by professional property investors who, despite the heightened cost of borrowing and strong economic headwinds, understand that property is a reliable and consistent asset and that if you can keep forward momentum while times are difficult, you will be well ahead of the pack when conditions ease and the market opens up.
The unregulated bridging sector has allowed them to do so, providing a finance route that lets them move quickly in order to maximise on the opportunities presented in a cooling market.”
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