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The bridging sector’s versatility has helped it adapt well to the changing market conditions of the past couple of years and go on to achieve record growth in 2024.
The latest figures from the Bridging & Development Lenders Association (BDLA) — formerly the Association of Short Term Lenders — show that bridging completions grew to a record £1.79bn in the third quarter (Q3) of 2024 — up 23.1% on the previous year.
Overall loan books also increased by 23.3% annually to exceed £9bn for the first time in Q3 and reach £9.01bn, with applications also up 12.3% year on year.
Many borrowers are willing to pay a premium for fast service and niche criteria
The bridging sector is unique in that sometimes it can still thrive when the wider mortgage market slows down. As we move into a new year, however, can the sector maintain its upward trajectory? And how can it balance the demand for faster completion times with the need to provide a more personal approach for some clients’ complex bridging needs?
Broad appeal
The bridging sector’s appeal spanned both the residential and buy-to-let (BTL) markets in 2024.
“We’ve seen a significant increase in regulated bridging loans, particularly where clients need to secure a new property while their current one is still on the market,” explains Envelop managing director Donna Francis.
“Bridging has provided homeowners with the flexibility to act quickly in a competitive market.”
The complexity of some borrowers’ requirements will still demand and favour a more personal approach from lenders and brokers
The market has also remained popular among investors.
“We’ve seen more clients turn to bridging finance for auction purchases — particularly to secure investment properties that are initially unmortgageable,” says Francis. “This enables them to refurbish these properties to a standard that qualifies for a traditional mortgage, creating further investment opportunities.”
Some borrowers have been acting strategically, she adds, using bridging finance while waiting for interest rates to drop before committing to a longer-term mortgage. Investors have also been using it to bide their time.
“Using bridging as a development exit allows investors to manage their cashflow and have additional time to sell properties without being rushed,” says Francis.
Interestingly, she attributes some of the market growth to changing perceptions around bridging.
“The stigma that once surrounded bridging finance has largely dissipated, with brokers increasingly recognising the versatility and flexibility that these loans offer,” she says.
Along with expansion of portfolios, landlords have been using bridging to convert existing properties.
There is a capital gains benefit in living in the property for a period before resale
“The pressure on landlords is driving a change in the stock of housing in the private rented sector,” says Brilliant Solutions group managing director Matthew Arena.
“With standard BTL business now harder to make profitable, those keen to continue leveraging and do so profitably are upgrading existing stock into higher-yielding properties. A simple example would be a refurbishment of a standard BTL into a house in multiple occupation,” he says.
As borrowers’ needs have evolved, so have lenders’ products. Earlier this year, specialist BTL and bridging lender Market Financial Solutions launched its Bridge Fusion loan — a hybrid of a short-term bridging loan and a longer-term BTL loan.
Bridge Fusion is a two-year tracker loan with an annual interest rate; if needed, borrowers can extend the loan for a third year. It is available for commercial, mixed-use and residential properties up to £20m.
Bridging should be fast… and it’s nowhere near as fast as it should and could be
With increasing competition in the sector, brokers and their clients are turning to lenders that can offer fast turnaround times while also catering to the increasingly complex needs of some borrowers.
“There are lots of bridging lenders keen to provide finance and there is a lot of competition in this market,” says Trinity Financial product and communications director Aaron Strutt. “Many borrowers are also willing to pay a premium for fast service and niche criteria that ensure they get the deal done.”
Role of tech
Francis observes that technology has significantly streamlined certain processes in the bridging market, enabling faster transactions.
“Automated valuation models and lender portals, for instance, have made it possible to generate instant decisions in principle, which can be crucial when time is of the essence,” she says.
“These advancements help ensure that straightforward cases move quickly, benefiting both brokers and their clients.”
Alongside speeding up the application process, technology can play a broader role in the market, says BDLA chief executive officer Vic Jannels.
There are lots of bridging lenders keen to provide finance and there is a lot of competition in this market
“We are currently working with software providers on the development of technology that could help bridging lenders tackle fraud,” he says. “[However,] technology is still only a tool, and the bridging sector relies on the input of human professionals — whether that’s providing advice or underwriting cases.”
Francis agrees, emphasising that, for more complex bridging scenarios, the human touch remains invaluable.
“Many cases require a commercial view and a bespoke approach to structuring the deal,” she says.
“Discussing these cases in detail, with an experienced master broker, is essential as we have the expertise to present the case effectively to a lender and secure an immediate response, ensuring the best possible outcome. This personalised guidance is what drives success for brokers and their clients, particularly in situations where flexibility and nuanced understanding are key.”
Arena believes there is still room for improvement in the speed of case completion.
“Bridging should be fast… and it’s nowhere near as fast as it should and could be,” he says.
The pressure on landlords is driving a change in the stock of housing in the private rented sector
“There will be people shouting from the rooftops about the odd quick deal here and there, but speed is still a frustration for most. There is a long way to go.
“Dealing with specialists across the process makes a huge difference, from solicitors to packagers. The difference an experienced expert can make is significant,” he advises.
Continuing demand
So, what may the next 12 months hold for the sector?
Jannels believes that, even if there are some market shifts next year, bridging will hold its appeal.
“As the property market picks up, regulated bridging will help homebuyers secure the home they want; and, with further pressure being put on property investors in the Budget, we can expect more to look towards higher-yielding investments, for which bridging finance can help them access opportunities.”
He adds: “There is also an expectation that planning regulations will be relaxed, making it easier for conversion of use between commercial and residential properties, as well as between different commercial uses. Again, this is an area where bridging can help the process by enabling investors to access the opportunity.”
Strutt can’t foresee any slowdown in the sector’s growth.
Brokers are increasingly recognising the versatility and flexibility that these loans offer
“There seems to be more adverse credit creeping into the market, which isn’t surprising given the cost-of-living crisis,” he says. “With so many people either not qualifying for finance through the big lenders or finding themselves in a financial pickle, the specialist mortgage and bridging markets will continue to grow.”
Arena is already getting a taste of what next year may have in store.
“We are seeing more regulated development enquiries; smaller builds by smaller developers looking to move into the property post-completion for the tax benefits before resale,” he says. “It is early days, but that is one to watch.”
He explains how this may work.
“There is a capital gains benefit in living in the property for a period before resale, so small developers are looking at using that to develop properties one by one to maximise the return on small plots.
We’ve seen more clients turn to bridging finance for auction purchases
“These are developers with small plots that are becoming harder to make a return on. It hasn’t started happening yet but we recently took three enquiries based on this concept: buy a small plot, build a home on it, move in, sell your own home. Build in the garden, sell the first build, move into the newer build, build in that garden, and then exit the development,” he explains.
“[However,] the bigger numbers are likely to come from inner-city refurbishments and changes of use. It will also be interesting to see if there is any genuine change in the planning rules.”
Personal approach
The bridging sector has demonstrated its agility over the past few years, with brokers, lenders and investors often identifying opportunities where others might see challenges.
The stigma that once surrounded bridging finance has largely dissipated
Although technology will continue to streamline processes, the complexity of some borrowers’ requirements will still demand and favour a more personal approach from lenders and brokers.
With the economic landscape likely to produce some more surprises in 2025, bridging will continue to support homebuyers and investors as they look to make the most of opportunities that arise.
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