Bridging finance brokers and lenders expect the market to grow but warned against the increasing time lag in loan completions, Interpath and the Bridging & Development Lenders Association (BDLA) UK reveals.
The latest Interpath & BDLA UK survey found that the increasing time lag in completing loans was causing delays in executing transactions and respondents raised fears over intense competition for loans.
Meanwhile, 62% of respondents expected annual origination volumes in the market to increase. That was supported by a strong expectation, according to 92%, that institutional funding would remain available at current levels or increase over the next year.
Respondents were also in agreement that average monthly interest rates on loans would fall – a sentiment shared by 62% of respondents and regarded as a key market driver.
However, there was some caution as 51% reported that the average days to completing a loan was lengthening, reflecting feedback that a slow legal process is a key challenge that is causing delays.
The survey also found that the market remained bearish on the need for property recoveries with 92% expecting the level of foreclosures to remain the same or increase.
Elsewhere, results showed that 51% cited the ‘average monthly interest rate’ for loans from the past 12 months to be 1.00%-1.25%, with 8% suggesting loans priced above 1.25%.
With regards to average loan-to-value (LTV) 65% to 70% was the most common bracket, followed by 60% to 65%, while average loan size has increased from the previous sentiment of £300k to £400k, to more than £600k.
When considering the average loan term, 57% selected nine to 12 months, which is consistent with the short-term nature of the market.
The survey also found that refurbishment was the most popular reason for borrowers to obtain a bridging loan and downsizing the least.
Survey participants were asked to identify the biggest challenges facing their business over the next 12 months.
Increased competition was the most common challenge selected, ranked by 60% of respondents, followed by a decline in property sales volumes and time to sell. Declining property values was the third most common challenge feared by those in the market.
Interpath managing director and head of financial services deal advisory Nick Parkhouse adds: “The next 12 to 18 months will be pivotal for the bridging finance market. The industry expects growth, more institutional funding, and a fall in interest rates, but there are still some real drags on activity, not least in the delays caused by legal processes on the time to execute a transaction.”
“While credit quality will increase, the results show us that there is still concern over defaults with fears over foreclosures remaining in front of mind.”
“One thing is certain – there will be more competition, which has taken over as one of the biggest concerns in the industry. As demand for financing for arrears builds, propelled by a decline in property sales volume and increase in time to sell, we’ll see more capital finding its way into an already busy and fragmented market and spark an intense fight for loans, including new entrants. The rest of 2024 is set to be a lively period for bridging finance.”
BDLA chief executive officer Vic Jannels says: “Latest data from the BDLA shows that bridging loan books hit a record high of £8.1bn in Q1 2024 and this survey confirms the level of optimism for ongoing growth in the market.”
“There will be challenges, of course, but by maintaining high standards of transparency, professionalism and customer focus, we will be well placed to meet the growing demand from both customers and institutional funders.”
