"Any sign that the appetite for bridging finance is increasing indicates that there’s a growing confidence in UK investment and development"
- Ashley Marks - Excellion Capital
The significant quarterly and annual increases in financing – especially in the commercial sector – is a clear signal that bridging lending in the UK is booming with all signs pointing towards further increases in the coming months.
Debt advisory and investments firm, Excellion Capital analysed bridging finance market trends data from Q3 2023 through to Q3 2024, including a top-line look at quarterly bridging market completions, the interest rates attached to it, and what purposes the money is being lent for, with the latter based on a market sample of contributor lenders.
Bridging market completions see impressive annual increase
An analysis of BDLA data reveals that the estimated total value of bridging market completions in the UK in Q3 2024 (latest data available) came to £1.79bn. This marks a quarterly increase of +2.9% and an annual increase of +27.9%.
To further understand the driving factors behind this significant increase in bridging finance, Excellion Capital has also analysed Bridging Trends data which provides insight from a contributor sample of the UK bridging market that can be used to better understand the drivers behind wider market trends.
Why is bridging on the up?
This sample of contributors, who have themselves seen bridging lending total £220.8m in Q3 2024 after a +9.4% quarterly increase, provides insight into precisely what purposes bridging finance is being used for.
The leading purpose is Investment Purchases, which accounted for 24% of bridging lending in Q3 2024. This marks a quarterly increase of +6% for Investment Purchases, and an annual increase of +5%, suggesting that the commercial sector is the driving force for increased lending.
17% of the quarter’s bridging has been issued for Chain Breaks, while 14% has gone towards Regulated Refinance. Regulated Refinance has also seen the highest quarterly increase of +8%.
Meanwhile, 13% of bridging in Q3 2024 went towards Unregulated Refinance, marking an annual increase of +7%.
Bridging lending rises despite stubborn interest rates
The annual bridging lending increase of +27.9% has come despite the fact that the average interest rate on a bridging loan has remained largely static over the course of the past year, showing only the slightest decrease of -0.02% annually to sit at an average rate of 0.92% in Q3 2024.
This static level of interest is due to the fact that the Bank of England base rate* also remained static for most of this time, sitting at 5.25% for four consecutive quarters before falling to 5.00% for Q3.
Now that the base rate has fallen to 4.75%, it’s reasonable to expect that taking out bridging loans will become even more attractive leading to an increase in total lending for the final quarter of 2024.
SONIA rates are falling
An analysis of daily SONIA rates reveals that between July and September 2024, the average rate has dropped from 5.20% to 4.95%.
Furthermore, an average daily SONIA rate of 5.03% for Q3 2024 also marks an annual drop of -0.06% since Q3 2023.
Falling swap rates
The average 1-year swap rate fell from 4.80% to 4.40% between July and September of this year, while the overall Q3 2024 average of 4.59% is -1.17% down on Q3 2023.
In turn, the average 5-year swap rate fell from 3.99% to 3.87% between July and September 2024, while the overall Q3 average rate of 5.00% marks an annual drop of -1.05%.
Falling swap rates can potentially provide a glimpse into what will happen with bridging loan interest rates in the future, suggesting that they, too, will start to come down. As such, it’s reasonable to expect that higher affordability will further increase the appetite for bridging loans as we move towards the end of the year and into 2025.
Ashley Marks, Head of Real Estate at Excellion Capital, comments: “Any sign that the appetite for bridging finance is increasing indicates that there’s a growing confidence in UK investment and development.
"It suggests that developers and backers alike feel secure that issuing short-term loans will help development projects get over the line and loans will be successfully repaid. If market confidence was low, people would consider the risk of bridging too high and numbers would be declining.
"We fully expect the appetite for bridging to keep growing over the coming months and into next year. SONIA and swap rates are already showing signs of coming down, which means interest rates on bridge loans will likely follow suit. This can be teamed with the recent reduction in base rates to 4.75% and we are left with little doubt that when Q4 figures are published, they’ll show yet another sharp uptick in lending totals.”
