The UK bridging finance sector has grown significantly over the last decade, evolving from a niche market to a mainstream solution for both property buyers and developers.
According to Q3 market data from the Bridging & Development Lenders Association (BDLA), the overall sector has surpassed £6bn in annual lending, driven by its unique ability to meet urgent and flexible financing needs.
As the residential property market gathers pace, with the suggestion of further Bank Base Rate (BBR) cuts to come, the opportunity in regulated bridging for brokers is clear.
Regulated versus unregulated
It’s important to understand the difference between regulated and unregulated bridging. Essentially, this is defined by the property’s use.
If the security for the loan is a main residence, or in the borrower’s own name, or a property the borrower intends to live in, it is regulated. If the property in question is owned by a company, it is unregulated.
There are always exceptions, as with everything in life. For example, if the property is going to be lived in by a dependent or close relative, it becomes a regulated bridging deal.
All buy-to-let deals are unregulated unless the borrower is an accidental landlord—such as inheriting the property before deciding to let it out.
This is referred to as a consumer buy-to-let, which is regulated.
Additionally, if the borrower is capital-raising via a second charge on their main residence, this qualifies as a regulated bridging deal.
From a risk perspective, the theory is that if your own home is at stake, borrowers should rightly have advice from a broker to ensure all the facts are presented.
When and how?
Education is key to spreading the message that regulated bridging loans can be an essential tool in the right circumstances.
A classic example is the horror scenario of a chain break in a residential sale.
When dates for exchange have been agreed and legal fees paid, agreeing on a short-term loan with a clear exit plan upon the property’s sale could make all the difference for that client.
Similarly, if a client has already fallen for their ‘dream home’ but hasn’t sold their current property, a short-term loan could keep their hopes alive.
Bridging finance is also appropriate for clients who have found the right property but cannot secure a standard mortgage due to its state of repair – such as missing a bathroom or kitchen.
Short-term finance allows the client to refurbish the property to meet standard mortgage requirements and, if desired, prepare it for letting or living.
Professional landlords are also taking advantage of market conditions to buy undervalued properties and refurbish them to increase value.
An unregulated bridge works well in these situations for the short-term funding required for such projects.
Auction finance opportunities
Several factors are driving the outlook for auction finance.
Online auctions and an increase in repossessions are stoking interest in both residential and commercial auction purchases.
Bids on two- and three-bedroom properties, as well as commercial office buildings, continue to see strong growth as workers return to offices post-Covid.
Developers inspired by the ‘Homes under the Hammer’ model can take advantage of the quick release of finance that bridging offers.
Short-term lenders are well-positioned to meet the 28-day turnaround needed for these purchases.
In many situations, short-term finance will address cash flow needs until the deal can be transitioned to term finance or the property is sold.
Consumer Duty
Consumer Duty, introduced in 2023, focuses on ensuring firms deliver good outcomes for customers.
It achieves this by aligning operations with four key areas: products and services, price and value, consumer understanding, and consumer support.
As a bridging lender, this means refining data strategies to effectively monitor and evidence customer outcomes while delivering the service clients and brokers need and deserve.
Firms must now ensure they can identify and evidence the results their clients experience, from fair pricing to transparent communication and robust post-sale support.
At StreamBank, service and broker relationships remain at the heart of our business.
While we are always competitively priced, we don’t aim to compete solely on loan rates, as we’re not interested in a race to the bottom. Instead, we compete strongly on product and service, ensuring the right outcomes for our customers.
StreamBank offers both regulated and unregulated property and development loans and has helped many clients this year to capital-raise for all property types.
As the residential market regains momentum, the opportunity in regulated bridging should remain front of mind.
Roz Cawood, managing director of property finance at StreamBank
