In a recent article published by Mortgage Introducer, Co-CEO of LDN Finance Chris Oatway was asked to examine the current bridging market, exploring past and upcoming trends within the sector. Below is the article in full.
Amidst economic uncertainty, bridging is rising in popularity
Close to £5 billion was lent through bridging loan completions in 2022, representing a 17.6% annual increase, according to market analysis by Assocation of Short Term Lenders (ASTL) Finance.
This also sits 24% higher than the pre-pandemic market in 2019, when £3.99 billion was lent through bridging loans.
Amidst the economic uncertainty and financial instability, the bridging market has risen in popularity in recent times.
Reasoning behind rise in demand
Oatway said the bridging sector was continuing to demonstrate its robustness in terms of client demand.
“We are continuing to see increased activity surrounding investor opportunity, including being able to buy distressed assets below market value,” he said.
The requirement for re-bridging as a result of unexpected delays and restrictive mortgage lending due to tightened lending criteria, Oatway suggested, seemed to be having a significant impact.
He added that there was also a much greater product choice for clients than 12 months ago.
Oatway said that these scenarios were ideal for bridging finance, and he believed were key causes for the increased up take.
Looking further at bridging trends data from MT Finance, investment purchases were the primary reason for bridging market activity, accounting for 23% of all loans issued.
“Something we have previously commented on is the increase in the overall value of commercial assets creeping down due to the current property market, combined with increasing interest rates,” Oatway said.
In many cases, he reasoned, fluctuating or steep increases in rates rising were causing the commercial finance interest rate to be close to the same level as the yield, which he added had put certain investments under financial pressure.
Oatway said that this then resulted in the assets becoming less appealing to hold within a portfolio long term.
“As bridges are fast-finance, generated quickly, clients are able to react to market conditions with speed, which is a real benefit in any market, but especially when there are so many variable factors that create opportunity,” he said.
Finally, Oatway said the delays in construction on development projects had been a constant frustration, and now this was combined with sales rates dipping in certain locations, therefore forcing developers to get a development exit product.
The past six months had been a hard graft in the property market, and he was expecting to see this continue.
“The residential property market looks like it is now through the worst of it, and there are signs of green shoots appearing with transaction levels creeping up,” he said.
Until interest rates settle down, speculated by some, he certainly did not think there will be any significant changes.
Based on current trends, MT Finance have predicted that bridging market activity will increase over the coming years, rising by 2.4% this year, with total lending expected to hit £5.59 billion annually by 2025.
This year, Oatway said, could be the time for many equity-rich investors taking advantage of those under pressure to sell.
“All indications are showing the demand for bridging will continue to increase across the year and into 2024,” he said.