Bridging Trends

Chain breaks are most popular bridging finance use for second consecutive quarter

For the second consecutive quarter, the most popular use of a bridging loan was to fund a chain break, contributing to 20% of all loans in Q1 2021.

The latest Bridging Trends report revealed that while this was the most prevalent use, it was down from 23% during Q4 2020.

Purchasing an investment property was the second most popular use for bridging finance in Q1, falling to 19% of all lending from 21% in the previous quarter.

According to Bridging Trends, this shows how bridging finance continues to be an increasingly attractive proposition to buyers who are looking to save their delayed property purchases

In addition, the report revealed an increase in demand for bridging loans for business purposes from 10% to 14% in Q1 2021, as businesses ready themselves for lockdown restrictions easing.

Overall, the UK bridging loan market stabilised in the first quarter of the year.

Total lending for the period increased to £144.51m, a 5% rise on the previous quarter, largely attributed to new contributors joining Bridging Trends: LDNfinance and Optimum Commercial Finance.

Regulated bridging loans remained unchanged from the previous quarter, at 48% of total lending.

Other significant results highlighted by Bridging Trends:

  • average LTVs rose to 55.2% from 51.3% in the previous quarter
  • average weighted monthly interest rate went up to 0.74%, still cheaper than pre-Covid levels (0.80%)
  • average bridging loan term climbed to 12 months, falling in line with the same quarter in 2020
  • average bridging loan completion time increased to 53 days, the highest figure recorded since Bridging Trends launched.

In terms of criteria searches made by bridging finance brokers during Q1, ‘maximum LTV’ was the most popular term, followed by ‘regulated bridging’ and ‘minimum loan amount’, according to data supplied by Knowledge Bank.

“Given the turbulence of the past year and the pressure to meet the SDLT relief deadlines, it is to be expected that chain breaks are the most popular use for bridging finance for a second consecutive quarter,” said Kimberley Gates, head of strategic partnerships at Sirius Property Finance.

“That said, we are finding that bridging is increasingly being seen as an important part of any savvy investors toolkit and not just a last resort. 

“We certainly always consider the suitability of bridging products when structuring our clients’ finance packages, in particular for those seeking to move quickly and make the most of the many opportunities in the property market currently for portfolio growth, thus it is no surprise that investment purchase follows as a close second for the top purposes for bridging finance.” 

Dale Jannels, managing director at Impact Specialist Finance, was also not surprised by chain-break finance being the top reason for bridging loans, claiming that a large number of solicitors are trying to exchange and complete on the same day.

“This will inevitably result in people pulling out of purchases later on, and therefore clients need a short-term loan to fill the gap their buyer left behind,” he added.

“This brings a great opportunity to the sector, especially with the addition of the next SDLT deadline looming on the horizon.”

Chris Whitney, head of specialist lending at Enness, stated: “I think we are very lucky to have the range of products at our disposal that we do. 

“20% of the total loans arranged by contributors being for chain breaks is an awful lot of individuals, families, and companies whose lives have been helped in very challenging times by the short-term lending industry.”

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