Investment purchases boost bridge loans
The total value of bridge loans has increased by 22% over the past year, driven by the purchase of investment properties.
Market analysis by Henry Dannell showed investment property purchases were the most common reason for taking out a bridge loan, accounting for 24% of all loans this quarter.
But Henry Dannell’s manager Geoff Garrett said the increase doesn’t mean people are struggling financially.
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“An increase in total bridging loans indicates that the systems in place are struggling to keep up with demand and cannot match the desired pace of buyers and sellers,” Garrett said.
“The housing market, for example, is moving more slowly than a year ago, or even two or three years ago. At the same time, buyer demand is extraordinarily high and business is booming.
“This causes delays in the sale and purchase process, which in turn increases the need for bridging loans.”
In the last quarter alone, bridge loans rose 13.8% to £178.4m, from £156.8m in the first quarter of the year.
However, these increases leave loans totaling 1.4% behind pre-pandemic figures, with total loans standing at £180.9m in the last quarter of 2019.
The mortgage broker’s analysis also showed that 21% of applicants needed the loan because they were part of a chain that was broken, which delayed their planned purchase schedule and created the need. a short-term loan to help them.
Lead times in the UK are currently at an all time high, taking an average of 57 days to get a sale on line and contracts signed.
That’s four days longer than the typical wait time last quarter and 10 days longer than the same time last year, according to Henry Dannell.
Additionally, 13% of loans went to people who need money to make major renovations to a property, such as an extension.
Despite the increase this quarter, Garrett believes that due to cost of living pressures and rate of rise in interest rates there will be a drop in buyer demand and therefore a drop in interim financing over the next year.
A bridging loan is a short-term loan, usually taken out for a maximum of 12 months, but often for a shorter term.
It is designed to allow a buyer to make an acquisition without the need to sell an existing asset, either in advance or simultaneously.
In most cases, it will either be replaced by a long-term mortgage facility or repaid from the proceeds of a sale.