A view of the landscape

Donna Wells, Director at F4B

In a year where much of the industry was geared up for a huge swell of remortgage business, the purchase arena has remained remarkably resilient and even taken a few people by surprise when it comes to the volume of property transactions taking place.

Unlocking property transactions

Over this period, lending propositions have obviously had to adjust to a variety of economic influences and pressure from rising living costs when evaluating affordability levels, policy and criteria. This has led to many borrowers seeking alternative ways to structure these purchases, with a greater proportion of brokers turning their attention to the specialist lending sectors. So, it was little surprise to see Q1 2022 experience a rise in the amount of gross bridging lending as, according to the latest Bridging Trends data, it hit £156.78 million over this period. This was 8.5% higher than in Q1 2021 (£144.51m), and up 7.8% (£145.42m) when compared with Q4 2021.

The data also showed that more borrowers turned to bridging finance in Q1 to help unlock property transactions. For the fourth consecutive quarter, the most popular use of a bridging loan was to purchase an investment property, accounting for 26% of all loans in Q1 2022, down from 29% in the previous quarter. The competitive nature of the property market was further highlighted by the second most popular reason for bridging finance in Q1 – funding a chain break. Trying to get property purchases moving accounted for the greatest increase in demand for bridging, jumping to 23% of all lending, from 18% in Q4 2021.

Regulated bridging spikes

Borrowing was also cheaper in Q1 as the average monthly interest rate on a bridging loan fell to a historical low of 0.71% in the first quarter of 2022, down from 0.77% in Q4 2021. This drop in pricing was driven mainly by the boost in regulated lending over the past three months as demand for regulated bridging loans increased for the first time since Q1 2021. The number of regulated loans conducted by contributors increased to 43.9% in Q1 2022, compared with 36% in Q4 2021.

The spike in regulated bridging activity translated into lower loan-to-values (LTVs), with the average LTV in Q1 decreasing to 54.5% from 57.3%. Bridging loans for business purposes saw the greatest decrease in demand with total transactions falling from 15% to 10%. The report said this could be due to business owners becoming more wary about starting or investing in new businesses in the current economic climate.

Many of these trends were also evident in May data from Knowledge Bank which outlined that searches in the bridging and commercial lending categories remained consistent with April’s results with searches for ‘regulated bridging’ and the ‘minimum loan amounts’ the top two bridging searches.

The value of bridging for commercial finance brokers

In the commercial sector, brokers searched for lenders prepared to lend on semi-commercial properties and for those who allowed the highest LTV. As an increasing number of the more ‘traditional’ lenders tighten their criteria, demand amongst SMEs, property developers, landlords and investors for a range of short-term financial solutions continues to soar.

This was highlighted in figures released by Together which saw the specialist lender provide more than 260 bridging loans worth £103.6m in April – a 17% increase on its previous record of £88million set in July 2021. As suggested in these figures, it’s clear that bridging finance is playing an invaluable role in the commercial finance brokers’ toolkit, allowing them to support clients achieve their property ambitions.

Commercial challenges

Looking at the wider commercial market, WorkLife’s latest Small Business Monitor found that high inflation is the greatest challenge cited by over the next 12 months. It outlined that 36% of smaller firms cited inflation as one of the top three challenges facing their business over the next 12 months. Following this were a range of other operational concerns, including supply chain complexities (22%) and rising business rates (22%). The research also found that SMEs’ investment plans could also be hit hard. 18% of respondents said were putting plans to invest in the business on hold due to high inflation, while 13% were scrapping investment plans altogether.

The challenging economic climate and rising interest rate environment is placing an even greater spotlight on the value attached to the advice process across financial services. From a packager standpoint, we are experiencing heightened demand from an array of brokers in terms of providing additional support and expertise to deliver a complex set of property-related solutions. And this will demand is only likely to grow over the course of Q3 and beyond in such a fast-paced and ever-changing lending environment.