Consumer caution in taking on unnecessary debt amid stubbornly high inflation and mortgage interest rate rises impacted the overall demand for bridging finance in Q2, new figures show.

Bridging Trends contributors reported £165.7m in bridging loan transactions – the lowest quarterly figure since Q1 2022 (£156.77m) and a 40.6% drop from £278.8m in Q1 this year.

The effects of consecutive Bank of England base rate hikes continued to impact the bridging market, pushing the weighted average monthly interest rate on a bridging loan from 0.79% to 0.84%.

This is the highest interest rate since Q2 2020 (0.85%), according to Bridging Trends.

Despite this, the average loan-to-value (LTV) remained comfortably under 60%, at 56.9%, an increase from 54.7% in Q1.

Bridging Trends says soaring interest rates and product pulls from lenders have impacted confidence in the market, causing borrowers to turn to bridging finance to complete their property purchases.

In Q2, regulated bridging extended its market share from 46.2% in Q1 to 48.7% – the highest proportion since the 53% reported in Q3 2020 amid the stamp duty holiday.

Demand for bridging loans to prevent chain breaks remained the most popular use for bridging finance for the second consecutive quarter, at 24%.

Property investors and landlords returned to the market in Q2, with bridging loans for investment purchase purposes jumping from 15% in Q1 to 22% in Q2.

Bridging Trends says this is likely due to investors and professional landlords taking advantage of a sluggish property market to purchase assets at a reduced rate.

Meanwhile, second charge bridging loan demand dropped for the fourth quarter in a row to its lowest level since Q3 2021, decreasing from 11.2% in Q1 to 10.7% in Q2.

Pressure on the industry continued as the average bridging loan completion time jumped from 54 days in Q1 to 58 days in Q2.

The average term of a bridging loan remained consistent at 12 months.

Clifton Private Finance head of bridging Sam O’Neill says: “The rise in rate doesn’t come as a huge surprise but it’s good to see that it isn’t as much of a dramatic knee-jerk reaction as perhaps it could have been.

“Chain break” leading the charge in loan purposes shows that despite cost, a bridging loan is often a means to an end and that the juice is worth the squeeze.”

Impact Specialist Finance managing director Dale Jannels adds: “Although these latest figures might seem gloomy in terms of lending volumes in Q2, it feels far from it in terms of enquiries, although it is definitely harder and more time-consuming to get some cases placed and funded with interest rates where they are currently.

“Despite this, what we are seeing is more motivated borrowers and fewer ‘tyre kickers’, which leads me to suspect a degree of pent-up demand is there and is ready to be unleashed once economic conditions become more favourable.”

Clever Lending bridging & commercial specialist Matthew Dilks says: “I have heard suggestions that regulated bridging will start to reduce as property sale exits are squeezed by lower sale values being achieved, but these figures along with what we are seeing at the start of Q3 show this isn’t really happening yet and I’m not sure it will either going forward.”