During this time, we have seen a huge improvement in the professionalism of the sector, a dramatic increase in the available product ranges as well as a host of new lenders, each bringing their own niche. However, one of the most momentous changes that we have witnessed is the ongoing contraction of interest rates on offered loans. With the further (dramatic) price contraction that we have seen in early 2017, we think it is time to ask whether this bridging price war is coming to an end.

•   Octopus drops residential bridging rates
•   Average bridging rates drop to 0.78%
•   UTB drops bridging rates to 0.55%

At Funding 365, we can look back fondly upon the early days of our existence where even low-risk loans held interest rates of 1.2% per month. The interest rates that we have charged since then have slowly but steadily decreased to a point today where almost all the loans that we write are materially below 1% per month. At this point, there are a handful of lenders who are offering bridging loans (for very low LTVs) from pricing levels around 0.5% per month. We could probably all have a debate about whether loan pricing at this level is sustainable (or profitable) given the relatively human-intensive, hands-on approach that underwriting and managing bridging loans requires. What is beyond debate, however, is that loan pricing at existing levels is only sustainable given the prevailing low interest rate environment. Last week’s inflation figures gave perhaps an indication that the end of the current low interest rate environment is perhaps coming into sight.

To recap the figures, inflation in February increased to 2.3%, which is now above the Bank of England’s 2% target for the first time since 2013. More importantly, the Bank of England has said it expects inflation will peak at 2.8% next year, and some economists think it could rise above 3%. Markets are currently pricing in a 30% chance of rates rising by the end of 2017 according to financial media.

Personally, I think that the Bank of England has no choice but to leave interest rates as low as they can for as long as they can and tolerate potentially higher levels of inflation than they are actually mandated to achieve. Inflating away some of the UK consumer debt – not to mention the national debt – is, of course, something the UK is well versed in. Having said that, if inflation was to jump above 3% and remain there for a couple of quarters, the Bank of England would have no choice but to start to increase rates, and perhaps do it rapidly.

Clearly all bridging lenders could wait until the Bank of England acts before they actually increase their loan interest rates. I would suggest, however, given that bridging loans are essentially fixed rate and that many lenders are now offering bridging loans from 18 to 24 months, some pre-emptive action may be required. We are not there yet, but it seems clear to me that we are witnessing the end of the bridging pricing war.