What is the bridging loan industry worth?

May 22, 2019

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What is the bridging loan industry worth?

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The bridging loan industry is growing

Despite growing uncertainty surrounding many industries due to the Brexit vote, one industry has not been suffering: the bridging loan sector. The most recent report into the industry, compiled by Ernst and Young, shows that even though there was a small dip in its value in late 2016 after the referendum to £4 billion, it quickly made a recovery soon after, meaning the bridging loan industry is approximately estimated to be worth a staggering £4.3 billion in total.

What is a bridging loan?

Before we explain in further detail what has caused this growth, lets first clarify exactly what bridging finance is. Bridging loans are quite new within the short-term finance sector, and enable borrowers to essentially ‘bridge the gap’ between the purchase of a high-value item (typically, it is used for buying property) and its deadline.

That means that bridging loans help raise finance for borrowers within a very short period of time (if they gain approval for a loan) which means they do not miss out on a potentially fantastic, but time-limited, deal. To secure this type of loan, something is usually put down as security.

Typical uses for a bridging loan

The most common reasons for apply for bridging finance are as follows:

  • Property: it is extremely common for individuals, companies or developers trying to get into the property market to apply for a bridging loan. This can enable a borrower to get funding to renovate a new (or existing) building, with the intention of then selling it at a later date at a higher price. For potential buyers of a dream home, they can use a bridging loan to complete a purchase on a new property whilst waiting for their current property to sell, such as through auction finance.
  • Business: bridging finance can also be used to help to release equity in small as well as large businesses. The loan is paid back once the company experiences growth and therefore generates better turnover.

 

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How many bridging lenders are in the UK?

There are approximately 40 major bridging lenders across the country. including recognisable names like West One Loans, MT Finance and Precise Mortgages.

Bridging loan industry statistics

In terms of other interesting statistics that were revealed in the report, it was also revealed that:

  • The average monthly interest rate for bridging loans was 0.84%
  • 83% of approved bridging loans were put on first charge
  • 17% of approved bridging loans were put on second charge
  • The average loan to value was 45%
  • The average term for a bridging finance loan was 11 months in total

Why is the bridging loan industry growing?

The main reason this industry has grown at a rapid rate in recent years is as a result of tightened lending regulations from traditional banks, and alternative and specialist financing like bridging loans, have filled in the gap.

Prior to the 2008 financial crash, regulations on lending were less stringent. Since then, banking regulations have tightened up considerably, making it harder for homeowners, landlords, and buy-to-let investors gain access to short-term finance.

This is where small, specialist lenders in bridging loans have been able to benefit, helping to fill a needed gap in the market.

 

 

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