Bridging loan borrowing increases by 22% amidst rise in investment property purchases

Bridging loans are short-term loans, usually taken out for up to 12 months. The loans are designed to allow a buyer to proceed with an acquisition without the need of selling an existing asset either in advance or concurrently. In most cases, it will be either replaced by a long-term mortgage facility or repaid from the proceeds of a sale. 

In the past quarter, the total amount lent through bridging loans has grown from £156.8m to £178.4m- an increase of 13.8%. However, this increase still leaves lending totals -1.4% behind figures immediately prior to the pandemic with the total standing at £180.9m in Q4 2019.

Early this year, BuyAssociation revealed that landlords bought 42,980 British homes during the first quarter of 2022. This equates to £8.5bn worth of property, which is almost twice the amount recorded pre-Pandemic. BuyAssociation believed this was evidence of an increase in investment property purchases.

Mortgage broker, Henry Dannell, has now confirmed that investment property purchases have been the most common motivation for bridging loan lending which has increased by 22% in the past year alone.

This infers that the majority of individuals taking out bridging loans aren’t doing so to fund their own home purchases but to fund what are presumably additional home purchases, which they will rent out in order to generate income. This was the case for 24% of all bridging loan applicants in the last quarter.

An additional 21% of applicants took out the loan after a broken chain they were involved with pushed their expected purchasing timeline off-kilter, creating the need for a short-term loan to tide them over. 

Meanwhile, 13% of loans were given to people who need funds to make significant, heavy refurbishments to a property. Examples might include extensions and loft conversions. 

Commenting on these findings, Geoff Garrett, Henry Dannell director, has said:

“An increase in bridging loans does not signify that people are struggling financially. Such loans are taken in order to fund major purchases or investments but can only be granted to people who can prove they have larger, longer-term loans coming their way, such as a mortgage. 

“Instead, an increase in bridging loan totals indicates that the systems in place are struggling to keep up with demand and can’t match the desired pace of buyers and sellers. The housing market, for example, is moving more slowly than it did a year ago, even two and three years ago. At the same time, buyer demand is extraordinarily high and activity is through the roof. This causes delays in the conveyancing and buying process which, in turn, increases the need for bridging loans.

“However, with the cost of living and interest rates rising so rapidly, one has to expect to see a slight drop off in buyer demand and, therefore, a decline in bridge financing over the next year or so.”