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December 17, 2024

UK Bridging Loans Market 2024: Trends, Opportunities, and Challenges

Erik Niewiarowski Written by Erik Niewiarowski
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Bridging finance has become increasingly vital in the UK housing market, particularly in 2024.

In fact, this niche market of property finance has hit record numbers this year, with the Bridging & Development Lender Association loan book hitting an all-time high of £9 billion. Q3 data reinforced that demand hasn’t lessened, with nearly 7% more applications than Q2 totaling £10.9 billion.

These short-term loans offer speed, flexibility and the ability to overcome challenges like chain breaks and market delays and have become a popular choice for homeowners, landlords and property investors no matter the size of their portfolio.

This year, the demand for bridging loans has surged, driven by factors such as a competitive housing market, rising property prices, and the need for quick access to funds.

Refurbishment and Development Exits Fuel Demand

A significant driver of bridging loan activity was the increased demand for property refurbishment and development exit projects. A typical Bridge loan situation involves a purchase with a refurbishment need. During the refurbishment (and development for that matter), property investors that enhance the size of the asset, convert to a HMO for better yields or increase the property’s Energy Performance Certificate (EPC) rating simultaneously increase its investment value.

Development Exit bridges provide developers additional time to sell units while raising capital for their next project.

Both of these trends align with the broader need to modernise the UK’s aging housing stock and shortage of homes.

This is an image of solar panels being installed during the construction process of a row of homes.

Impact of Auctions

While the 2024 home-buying market experienced volatility, residential property auctions surged in 2024. January of 2024 alone saw a 45% increase in available lots compared to January 2023, leading to over £135.5 million in revenue, more than doubling the £66.6 million the previous year.

With the increased popularity of auction purchases, investors need quick access to funds, and these time-sensitive opportunities, which often include a refurbishment angle, add value to the investment.

The tight completion timelines associated with auctions (typically 28 days) make Bridging loans an ideal solution to securing property auction purchases. Especially when you have the benefits of AVMs and Dual Representation.

Bridge-to-Let Demand

Concurrently, interest in Bridge-to-Let loans – which allow borrowers to transition from a bridge loan to a Buy-to-Let (BTL) mortgage – continued to rise in 2024.

A Standard Bridging loan or a Refurbishment Bridge loan can transition into BTL loans. These loans can be good options for investors who are buying out portfolios from existing landlords who are deciding to exit the market due to rental reforms, the impending increase in Stamp Duty taxes, and tighter EPC requirements.

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However, a seamless transition process remained elusive, hindering the full potential of this type of product. With this, brokers can benefit with cheaper costs by utilising the same professionals such as valuations and legals. At LendInvest we offer free valuation and legals on standard properties.

Technological Solutions to Add Speed

Despite the market’s growth, turnaround times for Bridging loans increased to an average of 52 days. This challenge prompted lenders like LendInvest to explore technological solutions like Automated Valuation Models (AVMs) and dual representation to expedite the process. When implemented, these new features streamlined the process and led to significant improvements. In some cases, deals were complete in just 9 days.

Macroeconomic and Regulatory Influences

Like other areas of the UK property market, Bridging loan activity in 2024 was also shaped by broader economic and regulatory forces:

  • A robust rental market, driven by by high interest rates and affordability constraints impacting homeownership, spurred demand for Bridging loans associated with BTL investments.
  • New and updated government policies, inclusing stamd duty changes and rental reforms, particularly those related to Energy Performance Certificate (EPC) ratings, added complexity to the BTL market, influencing landlord behaviour and Bridging loan decisions.
  • The increasing burden of costs and regulations led some landlord, particularly those with large portfolios, to sell their properties. This created opportunities for investors to acquire portfolios using Bridging loans.
  • Homeowners who decide to downsize or find themselves in a chain break found that a Regulated Bridging loan could be used to prevent them from missing out on an opportunity.

Want to learn more about how Bridging loans can help achieve your client’s portfolio goals? Get in touch or see our product range here!

 

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