The majority of lenders and brokers in bridging finance expect the market to grow over the next year, according to the inaugural Interpath and BDLA UK Bridging Market Survey.
The Interpath Bridging Market Survey monitored trends in the bridging finance market and collected insight from lenders, brokers and other specialists.
The survey was conducted in conjunction with The Bridging & Development Lenders Association (BDLA, formerly ASTL).
Interpath surveyed more than 50 figures from across the industry representing around £10bn of annual loans.
Considering average loan-to-value (LTV) rates, the survey was estimated to account for property transactions valued at around £15bn, giving a unique insight into the UK market.
The majority of respondents (62%) expected annual origination volumes in the market to increase.
That was supported by a strong expectation (92%) that institutional funding would remain available at current levels or increase over the next year.
There was consensus that there would be no change in credit quality or cost of origination.
Respondents also agreed that average monthly interest rates on loans would fall – a sentiment shared by the majority (62%) of respondents and regarded as a key market driver.
That said, there was some caution as 51% reported that the average number of days to complete a loan was lengthening, reflecting feedback that a slow legal process was a key challenge.
The survey found that the market remained bearish on the need for property recoveries with 92% expecting the level of foreclosures to remain the same or increase.
The survey also constructed a profile of bridging finance loans.
More than half of respondents (51%) cited the ‘average monthly interest rate’ for loans from the past 12 months to be 1.00% to 1.25%, with 8% suggesting loans were priced above 1.25%.
With regards to average LTVs, 65% to 70% was the most common bracket, followed by 60% to 65%, while average loan size increased from previous sentiment of £300,000 to £400,000, to more than £600,000.
When considering average loan term, 57% selected nine to 12 months, consistent with the short-term nature of the market.
Refurbishment was the most popular reason for borrowers to obtain a bridging loan and downsizing the least.
Survey participants were asked to identify the biggest challenges facing their business over the next 12 months.
Increased competition was by far the most common challenge selected, ranked by 60% of respondents, followed by a decline in property sales volumes and time to sell.
Declining property values was the third most common challenge feared by those in the market.
Nick Parkhouse, managing director and head of financial services deal advisory at Interpath, said: “The next 12 to 18 months will be pivotal for the bridging finance market.
“The industry expects growth, more institutional funding, and a fall in interest rates, but there are still some real drags on activity, not least in the delays caused by legal processes on the time to execute a transaction.
“While credit quality will increase, the results show us that there is still concern over defaults with fears over foreclosures remaining front of mind.”
He added: “One thing is certain – there will be more competition, which has taken over as one of the biggest concerns in the industry.
“As demand for financing for arrears builds, propelled by a decline in property sales volume and increase in time to sell, we’ll see more capital finding its way into an already busy and fragmented market and spark an intense fight for loans, including new entrants.
“The rest of 2024 is set to be a lively period for bridging finance.”
Vic Jannels, CEO of The Bridging & Development Lenders Association, added: “It’s clear that bridging is an increasingly vital cog in the workings of the overall UK mortgage and property market.
“Latest data from the BDLA shows that bridging loan books hit a record high of £8.1bn in Q1 2024 and this survey confirms the level of optimism for ongoing growth in the market.
“There will be challenges, of course, but by maintaining high standards of transparency, professionalism and customer focus, we will be well placed to meet the growing demand from both customers and institutional funders.”
