Bridging loans surge in popularity  

We have seen a surge in the use of bridging loans over the last 18 months. In 2022, demand increased by 14% on the previous year, to a total of £716m. Demand dropped back in the second quarter of 2023 but remains high.  

A bridging loan is a short-term fixed period loan, typically lasting up to 12 months. As they are short-term, they are generally more expensive than a traditional long-term loan or mortgage. But, on the plus side, they are extremely flexible and versatile. As such, they are an attractive option in today’s market environment.

Why have we seen a surge in bridging loans?

The demand for bridging loans has particularly increased in property transactions. They are used in a chain break situation, when one party cannot complete to the required timetable. A lack of housing stock and complex chains have made bridging loans a valuable option for clients to ensure their house move can complete. The bridging loan prevents the chain from breaking down and effectively allows the home mover to become a cash buyer again.

The second most popular use of bridging loans in 2022 and into 2023 has been for investment purchases. This is no doubt driven by the need to act quickly in a market where property is scarce. The continued shortage of housing stock makes the need to move quickly essential.

Funding heavy refurbishment is also a popular use of bridging finance. Landlords, in particular, are looking to enhance their property and ensure they meet EPC regulations rather than looking to buy in a competitive market.

Refinancing for an existing loan is also common. It may be because a property is taking longer to sell at the price required. Or it could be because banks are taking longer to approve longer term finance options and thus a bridging loan is required in the interim. It may also be because investors are deciding to keep a property for a short term in the hopes that rates will reduce or that the market will recover, and sale prices increase.

Legal support  

Bridging finance is quite different to a standard loan or mortgage. As such, the legal requirements are quite different too. It is therefore imperative to use a solicitor who understands bridging finance. A solicitor experienced in dealing with bridging loans will help speed up the process. They will ensure documentation is drafted appropriately for your needs and work collaboratively with you to achieve your objectives. They will also ensure that you are clear about the loan terms and any default interest.