Bridge loans up 14% in second quarter as competition pushes rates to record high
“The bridge market has been extremely competitive lately, leading to rate reductions and bespoke rates.”
Buying an investment property remained the most popular use of a bridge loan in the second quarter, at 24% of total contributing transactions, down slightly from 26% in the previous quarter. The second most popular use was chain breaking – accounting for 21% of total transactions.
The continued shortage of inventory means there has been no letting up of pressure on buyers. With multiple buyers competing for the same property in some cases, it is necessary to act quickly.
Non-cash buyers get a head start on the competition by turning to bridge financing for a quick cash injection; further underscored by the increase in bridging loans for auction purchases – doubling from 2% in Q1 to 4% in Q2.
However, regulated refinancing saw the biggest change in demand in the second quarter, rising to 10% of total transactions from 5% in the previous quarter. The shift could indicate that more owners looked to upgrade their properties in the second quarter, rather than move out and compete in a busy market.
Competition from lenders continued to drive down bridging rates to record lows in the second quarter, with the average monthly interest rate falling to 0.69%, down from the previous high recorded in the first quarter (0.71 %). LTVs increased slightly from 54.5% in the first quarter to 56.1% in the second quarter.
The pressure to act quickly isn’t just felt by buyers. Industry professionals, such as appraisers and transfer agents, have also seen an increase in demand for their services from buyers working to tight deadlines. As a result, the average loan execution time increased to 57 days from 53 days in the first quarter.
The split between regulated and unregulated bridge lending remained consistent with the previous quarter, with regulated lending accounting for 43.3% of the market, down from 43.9% in the first quarter.
Stephen Watts, Transition and Development Finance Specialist at Brightstar, commented: “It’s no surprise to see 83% of second quarter bridging loans being on a first charge basis, as there are fewer loan options for standalone second charges than before.
“It’s also not surprising to see a 14% increase in bridge financing activity. Demand for real estate currently outstrips the number of suitable properties for sale to homebuyers and investors. As a result, the Bridge financing is increasingly sought after to allow buyers to differentiate themselves from their competitors.With recent statistics confirming, on average, that there are up to 29 potential buyers for every property on the market for sale, this n It is not a shock to see such an increase in the need for rapid and short-term bridging financing.
Andre Bartlett, Director of Capital B Property Finance, said: “As always, Bridging Trends data shows exactly what is happening in the industry. Not surprisingly, volume increased by 14% and in particular, regulated refinancing showing the biggest increase. There may now be some pressure on lenders to raise prices, but we need to remember that rates are rock bottom and Relay still represents excellent value for the right customer.
“Lenders seem busier than ever and turnaround times are slipping; I think it’s a combination of staff shortages and business improvement. The industry is still well positioned to provide much-needed support to customers during what could be exciting times ahead.
Gareth Lewis, Commercial Director of MT Finance, added: “The bridge market has been extremely competitive lately, which has led to rate reductions and bespoke rates. This trend has allowed lenders to create a competitive advantage to try to gain market share. However, will we continue to see this in the months to come? I doubt.
“Base rate increases and swap rate volatility have been ubiquitous in 2022, but their impact has yet to really be seen in the bridge business, as it is across the mortgage market as a whole. continues to rise and funding costs rise, I expect to see the beginning of movement in our industry in the months ahead.