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.

This is according to analysis from bridging finance specialists Apex Bridging which looked at 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 £165.7m of bridging lending, which represents a 40.6% drop from £278.8m in the first quarter.

However, Apex points out that the Q1 total was the highest measured since the pandemic, so it shouldn’t be seen as normal for these levels to be maintained.

Levels of bridging lending in Q2 2023 have roughly reverted to what was recorded in Q4 2022, when lending stood at £166.3m.

On an annual basis lending dropped by 7.1%, falling from £178.4 million in Q2 2022.

Bridging often thrives in difficult economic times when transactions are falling through, allowing people to buy a property when they’re still waiting for their current one to be sold.

Known as a chain break, this 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%.

The Apex data suggest 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.

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.

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.

Chris Hodgkinson Apex Bridging managing director of Apex Bridging says: “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.

He adds: “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.”