The recent increase in the Bank of England Base Rate and inflation hitting 9.4% this June, may see an increase in investors looking for bridging finance.
Bridging finance is often used as a way to complete on a property within a tight deadline, giving purchases the opportunity to become cash buyers, whilst securing the loan against a property and being able to access funds sometimes in days or just a few weeks, provided that they repay the loan within 12 to 24 months.
Whilst common in the likes of Australia and New Zealand as a way to complete on homes and residential property, bridging finance emerged largely in the UK following the financial crisis and has since become a popular way for property investors and developers to access funds quickly for an auction or property completion.
There are around 50 bridging lenders in the UK and hundreds of brokers supporting them, in an industry which is a combination of both regulated and unregulated activity.
With increase in inflation, bank rates and living costs, industry experts suggest that we could see around 40% of UK mortgages becoming more expensive. For some this is just a few extra pounds per month, for others, it is hundreds.
According to credit broker TotalMoney, for the average UK house that costs £270,708, with a 75% loan-to-value, a 50 basis points hike could see mortgage repayments cost £196 per month more than in November 2021.
UK Finance said the average UK homeowner has £131,000 of mortgage debt outstanding and with the changing rates, those on a tracker deal could see their mortgage costs jump by £396 a year.
Whilst mortgages may become more expensive and also restrictive, this times nicely with the lowering of interest rates on bridging loans. Competition from lenders caused bridging rates to go to record lows in Q2, with the average monthly interest rate falling to 0.69% – down from the previous record low reported in Q1 (0.71%).
According to Gareth Lewis, commercial director of MT Finance, he commented:
“The bridging market has been fiercely competitive in recent times which has led to rate reductions, and bespoke pricing being offered. This trend has enabled lenders to create a competitive edge to try and gain market share. However, we are highly unlikely to continue seeing this trend in the coming months.”
He continued: “Base rate increases and Swap rate volatility have been ever present in 2022, but their impact has yet to be truly seen in the bridging sector, as it has throughout the mortgage market. As pressure continues to build and funding costs increase, I expect to see the start of movement in our sector in the coming months.”