Mortgage broker, Henry Dannel, claim that over the past 12 months there has been a 22% increase in bridging loan lending in the UK.

A bridging loan is a short-term loan, typically taken out for up to 12 months, to allow a buyer to proceed with an acquisition without selling an existing asset.

Over the past quarter, the total amount lent through bridging loans has grown from £156.8 million to £178.4 million. This is a significant increase of 13.8%. In the past year, lending has experienced an even greater increase as this has grown 21.8% since Q1 2021. 

Motivations behind taking out a bridging loan

The mortgage broker also reveals that the most common reason for taking out a bridging loan has been to purchase an investment property. This proves that these loans are being used to fund homes that will be rented to tenants to generate income. 

The second most common motivation behind applying for the loan was because they were part of a chain that broke. 13% of loans were given to people who need the money to refurbish a home. 

Despite the exponential levels of growth, it takes an average of 57 days to get a sale over the line and contracts signed. This is 4 days longer than the typical waiting time last quarter; 10 days longer than this time last year, and 6 days longer than before the pandemic.

Director of Henry Dannell, Geoff Garrett, commented: “An increase in bridging loans does not signify that people are struggling financially. Such loans are taken in order to fund major purchases or investments but can only be granted to people who can prove they have larger, longer-term loans coming their way, such as a mortgage.?

“Instead, 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. 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.?

“However, with the cost of living and interest rates rising so rapidly, one has to expect to see a slight drop off in buyer demand and, therefore, a decline in bridge financing over the next year or so.”