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Investment purchases drive jump in bridging loan lending 

The total value of bridging loan lending has increased by 22 per cent in the past year, driven by the purchase of investment properties.

A market analysis by Henry Dannell showed that investment property purchases were the most common reason for taking out a bridging loan, accounting for 24 per cent of all loans this quarter.

But Henry Dannell director, Geoff Garrett said the increase does not signify that people are struggling financially.

“An increase in bridging loan totals indicates that the systems in place are struggling to keep up with demand and can’t match the desired pace of buyers and sellers,” Garrett said.

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“The housing market, for example, is moving more slowly than it did a year ago, even two and three years ago. At the same time, buyer demand is extraordinarily high and activity is through the roof.

“This causes delays in the conveyancing and buying process which, in turn, increases the need for bridging loans.”

The past quarter alone has seen bridging loans grow by 13.8 per cent to £178.4mn, up from £156.8mn in the first quarter of the year.

However these increases leave lending totals 1.4 per cent behind pre-pandemic figures, with total lending sitting at £180.9mn in the final quarter of 2019.

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Broken chains
The mortgage broker’s analysis also showed that 21 per cent of applicants needed the loan because they were part of a chain that has been broken, which pushed their expected purchasing timeline off track and created a need for a short term loan to tide them over.

Completion times in the UK are currently at a high point, taking an average of 57 days to get a sale over the line and contracts signed.

This is four days longer than the typical waiting time last quarter and 10 days longer than this time last year, according to Henry Dannell.

In addition, 13 per cent of loans were given to people who need the money in order to make significant refurbishments to a property, such as an extension.

Despite the increase this quarter, Garrett is of the view that because of cost of living pressures and the pace of interest rate rises there will a drop in buyer demand and as a result a decline in bridge financing over the next year or so.

A bridging loan is a short-term loan, typically taken out for up to 12 months but often for a shorter duration.

It is designed to allow a buyer to proceed with an acquisition without the need of selling an existing asset either in advance or concurrently.

In most cases, it will be either replaced by a long-term mortgage facility or repaid from the proceeds of a sale.

By Jane Matthews

Source: FT Adviser