Bridging Loans Surge Amid Market Uncertainty: Why Demand for Short-Term Finance is Booming

Bridging loan demand shows no sign of slowing, with record growth in Q2 totalling £201.8 million. This represents an increase of 2.9% from Q1’s figure of £196.2m. But what has driven this charge? 

Property market uncertainty

Despite a plateauing of interest rates and a stabilising of inflation, property market uncertainty remains a key driver in the growth of short-term property finance and bridging loans in the UK. 

Demand for property is expected to outstrip supply for the next few years, which in turn will drive up prices, particularly in economically vibrant cities and commuter belt towns. Therefore, property developers and investors are more likely to turn to short-term property finance, such as bridging loans, to secure their investment quickly before seeking longer term finance.   

Lack of property supply has also led to significant increases in rent, and although under the spotlight of the new government, investors who remain on the lookout for rental properties will also see bridging loans as an attractive alternative lending solution.

It’s also worth noting that auctions are proving fertile ground for property investors too with properties often under-valued. This led to auction finance demand increasing from 9% in Q1 to 14% in Q2.

Speed and flexibility are also attractive characteristics of alternative lending solutions. The protracted nature of a home purchase with conveyancing delays a familiar story in the mainstream mortgage market, means it’s not surprising that in Q2, 23% of bridging loans were used to prevent a chain break. 

Looking ahead 

As traditional banks remain more cautious with property market uncertainty and automated processes become more commonplace, specialist funders will look to strike a balance between automation to drive pace for client transactions and project analysis and due diligence that delivers to their specific circumstances.

At Prospect Capital, our reputation for delivering on time sensitive transactions is strong, but we are continuing to introduce new processes to stay ahead of the market, while complying with increased regulatory measures and risk management processes designed to protect all parties. We remain committed to providing credit-backed terms within 24 hours of application, on the basis all necessary information is provided. We also give access to decision makers to discuss cases prior to application to provide some certainty.

Despite some uncertainty, with the UK property market benefitting from the first base rate cut in four years, we are attracting more cross border capital investment than the US or any of our European peers. Looking ahead for the remainder of the year, bridging loan demand is likely to remain buoyant and we expect commercial lending in Q4 to be strong.