Bridging Finance is a well-established and professional method of raising property finance. It has existed in one format or another since 1962. This means we have had bridging finance options for the last 60 years.
From its original roots of being used to prevent chain breaks it has developed into a widely accepted solution for property finance needs. Here are just a few of the types of bridging finance:
- Non-regulated investment property purchase/refinance
- Regulated property purchase/refinance
- Auction purchase finance
- Refurbishment finance
- Development finance
- Development Exit finance
- Revolving Credit finance
During the early times of bridging finance, it was only really available to prevent chain breaks. This carried on through to the late 1980s. The Housing Act of 1988 introduced the AST (Assured Shorthold Tenancy); this made buy-to-let property far more attractive to investors. Clients would use bridging finance to purchase properties at auction, refurbish and then exit with a traditional buy-to-let mortgage. Bridging finance gave the borrowers a faster solution than commercial mortgages or business loans at the time.
This continued throughout the 90s with more lenders offering bridging finance than ever before. Rising property prices, self-certification and easy borrowing fueled further rises in property values. A number of smaller bridging firms and family offices were offering high finance rates and high penalties, being very quick to repossess properties on default. This meant many people had a negative view of bridging which still carries through to today. Although there is much less of it, there is a still a stigma attached to bridging finance which was caused by the lending practices of the early to mid-2000’s.
The Credit Crisis of 2007/08 provided a great opportunity to alternative lenders. With high street banks pulling away from lending against properties, borrowers turned to bridging finance. Between 2007 and 2012 many specialist lenders were established to fill the gap in the market. It is widely acknowledged that bridging and specialist finance lenders helped kick-start the property market. By 2011/2012 the traditional lenders began providing mortgage finance again and property values were set on a trajectory which would see houses increase in value by 60 – 70% within 5 or 6 years.
The housing market has been in varying states over the past 5 years with Brexit, Covid, Ukraine War, price increases, high inflation, high interest rates and so on. Bridging Finance is still used, with more lenders coming to the fore offering their specialised products.
In 2023, we have witnessed great fluctuations in the level of bridging finance. The first quarter of 2023 saw the highest level of bridging transactions since the pandemic, with £278.8 million. However, transactions fell to £178.4 million in Q2 2023. Although this is a big drop, it is closer to Q4 2022 which stood at £166.3 million.
There is no doubt that the slow-down can be attributed to higher rates which have been the result of high inflation and the Bank of England increasing the base rate to 5.25%. In more recent times, as the base rate has stabilised, lenders have been reducing their rates, both in terms of mortgages and bridging finance. As rates reduce further, mortgage and bridging transactions will increase.
There are still huge opportunities for the specialist finance sector. Bridging accounts for 13 – 15% of property transactions, with around £700 – 800m borrowed per annum. This, however, is spread around the 150 or so lenders, so the market is fairly crowded.
Here at London Credit, we use our 11 years of trading experience and knowledge of properties to provide sensible lending products. We ensure our borrowers are able to exit our loans and maintain excellent relationships with our introducers.
Our new Commercial Lending product is the result of our experience with semi-commercial and commercial properties. We are able to offer this not only within London and the M25, but in all major cities and towns across the UK. Taking a sensible approach to lending, exits are achievable in the current market. The BDM team are ready to assist our brokers and introducers to provide solid lending solutions for their clients and borrowers.
By Simon Michael
Operations Manager – London Credit