"Due to the fast nature of the application process, bridging loans are also often being used in situations where there is a very short completion deadline."
One of the main reasons people take out a bridging loan is the speed and ease with which the funds can be released. Unlike traditional mortgages, bridging loans are designed to provide borrowers with a quick, flexible and short-term solution to swiftly securing finance in order to purchase a property.
In the current economic climate, demand for this type of financing remains high, with residential borrowers, first-time buyers and property investors all using bridging finance as a means to achieving their property goals, despite average monthly interest rates jumping to a three-year high in Q2 2023, according to Bridging Trends.
The figures show the use of bridging loans for preventing a chain break (24%) remains the most popular use of the product while the use of a bridging loan for investment purposes bounced back from 15% in Q1 to 22% in Q2. Similarly, demand for regulated bridging products also rose over the quarter, from 46.2% in Q1 to 48.7% in Q2.
With rate pressure starting to ease following the Bank of England’s decision to hold the base rate at 5.25% at its September meeting, demand for bridging loans is expected to rise in forthcoming months as borrowers seek ways to capitalise on opportunities in the market as economic conditions begin to improve.
Recently, Norton Broker Services has seen increasingly high demand for bridging loans among both investors and residential buyers as they look to make the most of the slight drop in house prices and move to snap up property in a slowing market. As market conditions become more stable, we expect this trend to continue as awareness of the sector continues to grow.
In the unregulated bridging sector, professional landlords have already started to take advantage of amateur landlords selling up and exiting the buy-to-let sector by using bridging finance to fund and immediately refurbish properties to improve their yields.
Due to the fast nature of the application process, bridging loans are also often being used in situations where there is a very short completion deadline. This includes buying at auction or the purchase of a property that is below market value that cannot be financed using a traditional mortgage, making them ideal for investors looking for a swift turnaround.
In each of these situations, a bridging loan can prevent the collapse of the purchase as the money is made available much more quickly than a traditional mortgage. It also gives the buyer an advantage over any competitor also interested in the property by putting them in a better purchasing position.
As previously mentioned, the use of a bridging loan to prevent a chain break is the most common use of the product as it allows borrowers to use the money from the bridging loan to purchase a property while they wait for their own house to sell. Once their house is sold, the proceeds from the sale are then used to repay the bridging loan.
This is an approach commonly used by those borrowers in and approaching retirement who are perhaps looking to sell and safeguard the purchase of another property to be closer to family or simply because they want to downsize from the family home to a smaller and more manageable property.
It is important to remember that every lender will want to see a viable strategy for exiting the loan at the application stage, which in the majority of cases is likely to be the sale of an existing property. For investors and property developers this could also be the remortgaging of the property onto a buy-to-let product if the property is going to be rented out.
Brokers unfamiliar with bridging finance can refer their clients to Norton, who can guide them through the process by providing the advice and help needed to find a suitable solution for their clients. With direct access to a host of regulated lenders on its panel, brokers can be confident that their clients’ needs are being met leaving them to focus on other business matters.