The stellar growth of the bridging market in recent years speaks volumes about the changing shape of the UK mortgage market.
Economic challenges such as the global pandemic, political instability and the cost-of-living crisis, have all created an environment in which the need for short-term financing products have been able to flourish.
This has led to increased competition and a greater choice of products in the sector, with new bridging lenders continuing to enter the market as awareness, knowledge and appetite for the product continues to grow.
While the exact number of lenders in the bridging market remains unknown, it is generally believed that there is anywhere between 200 and 400 different types of regulated and non-regulated players in this area of the mortgage market.
This is a staggering figure for what many consider to be a niche area of the mortgage market and there are more players expected to enter the market this year.
Industry forecasts suggest that growth in the sector looks set to continue, with figures from the ‘Mintel UK Bridging Loans Market Report 2024‘ expecting the value of the bridging loans market to reach £10.9bn by the end of this year.
The report also anticipates the bridging loan market will grow by 25% overall during the course of the next five years.
While a burgeoning bridging market is great news for borrowers and the wider mortgage market alike, the sector’s sustained and continued growth is both welcome and unsurprising news for many of those working in the specialist lending industry.
For far too long, bridging loans have flown under the radar, often associated with landlords and property developers looking for speedy access to flexible finance. Yet the market offers much more than that, and its growth in recent years, which has seen sales of regulated bridging products to residential borrowers’ soar, is testament to that.
The fact is, bridging loans can be used in any situation where a buyer needs to move quickly on a property purchase, such as securing a property at auction or buying a property that is below market value.
While this type of purchase has often been associated with landlords and property investors, a growing number of residential borrowers are also starting to use bridging loans in the same way. In fact, taking out a bridging loan to prevent a chain break in a slow-moving market was the most common use of the product among regulated borrowers in Q1 2024, according to data from Bridging Trends.
Using a bridging loan in this way allows borrowers to use the money from the bridging loan to purchase a property while they wait for their own house to sell. Once their house is sold, the proceeds from the sale are then used to repay the bridging loan.
This type of approach is commonly used by borrowers in retirement who are perhaps looking to sell and safeguard the purchase of another property to be closer to family. In other cases, it may simply be because they want to downsize from the family home to a smaller and more manageable property.
Bridging loans can also be used to carry out property renovations, to invest in a business or to pay a tax bill. In each of these situations, the borrower will use the funds to bridge the gap while they wait for longer term financing to become available.
Given the diverse range of ways in which bridging loans can be used, it is little wonder that the market has witnessed such growth over the last few years.
With increased knowledge and a greater understanding of the sector among consumers and brokers, demand for bridging loans looks set to continue. For brokers in the mortgage market, this presents an opportunity to tap into a lucrative and growing sector, while continuing to serve the needs of their clients.
Eddie Lau is account manager at Norton Broker Services