Last year saw a continued rise in demand for bridging finance, with Bridging Trends contributors completing £626.7 million of bridging loans in 2021, a nearly 40% increase on 2020 figures.
Demand for bridging finance was highest in Q3 2021, which saw £190.24 million in completed bridging loans. Overall, the supply/demand imbalance in the housing market is likely to have created demand for bridging loans over the course of the year and the Q3 spike in demand is likely a reflection of buyers wanting to complete transactions before the stamp duty holiday ended in September.
There was an overall rise in unregulated finance in 2021, which was up 8.2% compared to 2020 figures. The stamp duty holiday is likely to have contributed to bridging loan uptake overall last year – particularly for regulated loans – but for high-value unregulated loans, the stamp duty holiday wasn’t the main driver of demand.
At the top of the market, buyers want to move quickly, and they don’t want to be tied up in protracted property transactions that drag on for months. Undoubtedly, the stamp duty holiday and potential savings shaped demand for completing property transactions quickly. However, these savings are less likely to be as compelling as they were for buyers in other parts of the market buying lower-value property.
Buyer Openness to Solutions, not Products
High-net-worth individuals will usually work alongside mortgage brokers to help them secure the most competitive property finance deal. But these high-value buyers are increasingly looking to brokers to help them source the most effective finance solution, rather than simply the best mortgage. As a result, borrowers are open to exploring different lending products suggested by their mortgage broker. Brokers will look at the borrower’s financing needs and the borrower’s immediate priorities. If buying property quickly and with as little hassle as possible is important to the borrower, brokers can put forward other financing mechanisms such as bridging finance, rather than only proposing mortgages. This is likely to have fuelled consideration and understanding of bridging finance.
The time it takes to complete mortgage applications is almost certainly a driver for unregulated bridging loans. Many high-net-worth individuals continue to be surprised by the amount of time it takes to secure a mortgage from a conventional lender, even though they may effectively be a VIP borrower. Sometimes this realisation in itself is enough to spur consideration of other lending products, either as a stop-gap solution (i.e., bridge to refinance) or an all-in-one solution (bridge to a liquidity event or another exit).
We regularly get applications from high-net-worth individuals who want to use bridging finance to effectively lock in a property sale (in the UK or aboard) quickly. Here, getting the deal done quickly is often a primary motivation for borrowing, along with the streamlined underwriting process and our ability to lend significant amounts. Refinancing remains one of the most common exit routes, underlining the desire for bridging finance as a way to borrow quickly before going on to secure a mortgage or long-term loan.
Demand in 2022
Looking forward, we believe that demand for unregulated bridging won’t wane, especially at the top of the market. Completing property purchases quickly continues to provide ample motivation for using unregulated bridging finance, especially for high-net-worth individuals who tend to be quality borrowers and have a choice of various types of loan and financing options.
However, we also see demand on other fronts. Broadly speaking, a third of our applications come from borrowers who are looking to use unregulated bridging finance to buy a property. These applications reflect what other lenders see in the market and relatively ‘standard’ motivations for a lending application (purchasing property quickly, breaking property chains, etc.). However, around two-thirds of our applicants want to use our liquidity finance offering to solve a problem or pursue of an opportunity, using a short-term loan secured against a prime property in their portfolio to do this. We expect to see continued demand grow for lending in these kinds of scenarios over the year.