UK bridging loans reached record highs in 2015
Bridging loans were traditionally a means to complete the purchase of a property when the completion dates between the new purchase and the property being sold did not coincide exactly, and they were designed to be on a short term basis, usually with a very high interest rate added.
Whilst this is still an important feature that many may have to use, increasingly the bridging finance is being used in commercial projects and by property firms. Many traditional banks have been reluctant to offer this facility since the recession, so what we are now seeing is a specialist bridging sector growing.
As a result of this we have seen a massive explosion in bridging lending with a gross amount of £3.5billion being lent in 2015, growing much faster than the traditional mortgage sector. Whilst this is an impressive figure it is still only worth around 1.5% of the tradition mortgage sector.
A factor which has driven this growth is the shortage of property due in the main to lack of land, particularly in the London and South East of England. What this has caused is an increase in redevelopment and conversions of existing property, these often require short term capital, which banks are reluctant to offer post-recession.
Traditional high street mortgage providers are also reluctant to become involved in short term finance and commercial lending. This has meant that the bridging sector has been able to grow, particularly as they see that high street banks are still reluctant to offer this facility.
Another factor in the growth of the bridging sector has been the increase in properties being sold at auction. Under auction rules the successful buyer must put up the money at the end of the auction, this has led to buyers turning to bridging as high street banks are again very reluctant to lend money for auction purchases.
New regulation from the European Union’s Mortgage Credit Directive is sure to help as these rules mean that some bridging loans, specifically secured on an individual’s home will come under the Financial Conduct Authority, but it does exclude loans that are, in the main, for the purpose of business. This will mean that as some of the loans offered by the bridging sector are regulated, the sector will become enhanced and we will see more demand from FCA regulated brokers.
So as the sector becomes more enhanced, we expect to see it maintain the already impressive growth rate, we can see it getting a boost as buyers require finance in the bridge to let sector, before April’s impending Stamp Duty hike, when buyers rush to complete their purchases before the deadline.
As the demand for fast finance looks set to rocket, an increasing number of borrowers will turn to bridging in 2016.