Refurbishment remained the key reason for bridging loans over the past year, with the reliance on bridging loans to fuel refurbs expected to grow over the coming year.

That is according to specialist lender Octane Capital which analysed data from the EY Bridging Report to reveal  how borrowers have utilised bridging loans since 2021.

The analysis shows that last year, refurbishment was the most popular reason behind borrowers’ appetites for bridging loans. 33% stated that refurbishment was the most popular reason behind their need to utilise bridging finance, with auctions (19%) and mortgage delays (16%) also ranking as popular reasons.

Whilst refurbishment remains the most popular use of bridging loans, this popularity has reduced in recent years, down from 35% the previous year and 50% in 2021. However, Octane believes that this downward trend is likely to reverse in 2025, as the mortgage landscape improves from an affordability standpoint.

Looking at the year ahead, use of bridging finance could become increasingly attractive as costs cheapen, which is likely to happen throughout 2025.

In February the Bank of England cut the base rate from 4.75% to 4.5%, while two members of the Bank’s Monetary Committee opted for a 0.50% rate cut – indicating that further reductions are on the horizon, which should filter into more affordable bridging loans.

As it stands Octane Capital’s analysis indicates that when taking out a £200,000 refurbishment loan, it typically costs £26,000 based on the current rate of interest and various fees into account.

Whilst the decision was made to hold the base rate at 4.5% in March, the general expectation is that rates will continue to reduce over time, which in turn, should see the cost of bridging reduce.

In the coming years landlords have a strong incentive to improve the energy efficiency of their properties, as Labour has proposed for all privately rented homes to reach an Energy Performance Certificate (EPC) rating of C by 2030 to be deemed lettable.

The UK has already been hard hit by the rising cost of energy since Russia’s invasion of Ukraine started in early 2022, making it more paramount than ever to improve the green credentials of the UK’s housing stock, and accordingly lower the cost of monthly bills.

Jonathan Samuels, chief executive of Octane Capital, comments: “Bridging is a flexible form of finance, which is reflected by the popularity of its utilisation for refurbishment.

“Whilst this popularity has reduced somewhat in recent years, bridging could come into its own in the coming months, as borrowing costs fall and improving Energy Performance Certificates become more of a priority for UK investors. Not only is there the 2030 deadline for improving EPCs to C, there is a strong case for lowering the cost of energy bills at a time when costs have skyrocketed.”