Short-term Loans in 2022 were the highest since 2019, when they hit £732.7m, data from the property finance lender’s latest Bridging Trends survey shows.
It says that loan transactions beat pre-pandemic levels “as stock shortages put pressure on buyers to move quickly”.
The survey adds that the “market withstood numerous challenges throughout 2022, including the conflict in Ukraine, soaring inflation, the subsequent cost-of-living crisis, and political uncertainty caused by September’s disastrous mini-Budget”.
Bridging loans reported year-on-year growth in all four quarters of last year, peaking in the third quarter at a record £214.7m – the highest level of transactions in a single quarter since the study launched in 2015.
The average annual interest rate fell to the lowest level last year to 0.73%, down from 0.76% in 2021 and 0.79% in 2020.
The survey says: “Strong competition between lenders amid Bank of England rate hikes pushed down rates in the first three quarters of the year. However, the final quarter of 2022 saw a sharp spike in pricing following September’s mini-Budget, with the average monthly rate increasing to 0.79%, up from 0.73% in the third quarter.
It adds the average loan-to-value last year was static, at 57%, “reflecting that despite market competition, a conservative and sensible approach to lending is being maintained”.
The report says the continued shortage of housing stock meant there was serious competition and pressure on buyers this year.
This resulted in an increasing number of homeowners turning to bridging finance with regulated transactions accounting for 44% of all bridging loans last year, up from 40.8% in 2021.
The need for rapid transactions was further highlighted by the rise in bridging loans being used to prevent chain breaks, which rose from 18% in 2021 to 20% last year, the report adds.
Funding an investment purchase remained the most popular use for bridging finance last year, although demand fell from 25% in 2021 to 23% in 2022.
It adds that loans for unregulated refinance purposes saw the greatest increase in demand, surging to 11% of total transactions last year from 6% in 2021.
The study says: “This shows that property investors and landlords looked to maximise rental yield by enhancing their investment properties in 2022, rather than buy and compete in a busy market.”
Second-charge bridging loans accounted for 13.7% of transactions last year, a drop from 14.8% a year ago, a record low for annual Bridging Trends data.
“This dip could be due to borrowers looking to move and purchase new properties, rather than releasing equity in their current assets,” the survey says.
The average loan term last year was once again 12 months, while the average completion time for a bridging loan crept up to 59 days, from 52 days a year ago.
The top criteria search made by bridging finance brokers last year was for ‘regulated bridging’, according to data supplied by Knowledge Bank, “which further indicates the growing demand for regulated products”. In 2021, the top criteria search made on the Knowledge Bank system was for ‘maximum LTV’.
Impact Specialist Finance managing director Dale Jannels says: “With the lack of housing stock unlikely to change in 2023, along with continued affordability challenges for borrowers due to increased interest rates, the use of regulated bridging to fund onward purchases before their current home is sold will remain a viable option.
“I do not expect to see a reduction in its use anytime soon.
“It is also interesting to see an increase in unregulated refinance and I expect to see this trend continue with landlords making houses in multiple occupation conversions, plus a realisation from more and more landlords that the energy performance certificate regulations aren’t going away.
“This will lead to more improvements being made to improve energy efficiency in older properties especially.”
