After having a big impact on the housing market at the start of the year, bridging lending slowed to a steady pace in the second quarter of 2023.
Bridging finance specialists, M’Cube Holdings, analysed market data on factors like lending levels, average interest rates, and what motivates people to take out this form of short-term finance.
In the second quarter there was £165.7 million of bridging lending, which represents a -40.6% drop from £278.8 million in the first quarter. However, the Q1 total was the highest measured since the pandemic, so it shouldn’t be seen as normal for these levels to be maintained.
Back to normal
Levels of bridging lending in Q2 2023 have roughly reverted to what was recorded in Q4 2022, when lending stood at £166.3 million.
On an annual basis lending dropped by 7.1%, falling from £178.4 million in Q2 2022.
Most popular uses of bridging
Bridging can thrive in difficult economic times when transactions are falling through, as it allows people to buy a property when they’re still waiting for their current one to be sold.
This is known as a chain break, and it continued to be the most popular use of the product in Q2 2023, being the reason borrowers used bridging 24% of the time.
The second most popular use is for investment purchases, at 22%, followed by heavy refurbishments, at 13%.
Influence of mainstream market
It’s likely bridging slowed down in Q2 due to buyers and sellers adjusting to higher mortgage rates throughout 2023, following a more turbulent Q1.
In the winter months buyers were struggling to deal with big fluctuations to mortgage rates, so property transactions were more likely to break down, requiring bridging to step in.
More investors using bridging
The proportion of borrowers using the product for investment purchases increased from 15% in Q1 to 22% in Q2, which suggests more people have confidence in the market to use the finance to make a healthy return, rather than just for a chain break situation.
Similarly the proportion using bridging for heavy refurbishments rose from 10% in Q1 to 13% in Q2.
Rising bridging rates
While rates haven’t increased by the levels in the mainstream mortgage market, bridging finance has become more expensive, which could serve to dampen down activity.
Typical bridging rates stood at 0.84% in the second quarter of 2023, up from 0.79% in the first quarter, and 0.69% in the second quarter of 2022.
Managing Director of M’Cube Holdings, Chris Hodgkinson, commented:
“The bridging sector was a calmer place over the spring and summer months, taking a breath after having an extraordinarily busy Q1.
“We could be set for a steadier end of the year too, as homeowners are adapting to a new normal of higher mortgage rates.
“Finance is also becoming more expensive in the short-term lending sector, making it harder for investments to pay off.
“One positive is a greater proportion of people using the product for investment purchases and heavy refurbishments, suggesting investors are still seeing opportunities to make strong returns in the current market despite the tougher conditions.”