Given the sustained lull in the overall volume of property-related transactions over the course of 2023, from the outside in at least, there may be a common misconception that the mortgage market is running on empty.
Of course, it’s the sheer quantity of the more vanilla property purchases which have bolstered these numbers year after year but as we transition to a new, higher interest rate environment, it’s hardly surprising to see overall numbers fall and generate some largely negative headlines.
After operating in the specialist sectors for over 20 years, we – as a business – have become accustomed to looking beyond these headlines to appreciate that strong levels of transactions are still taking place even during a complex marketplace where borrowing needs are constantly changing and alternative sources of funding may be required. And one area which continues to deliver in terms of ensuring that these specialist cases get over the lending line is the bridging finance sector.
This was demonstrated in Q3 2023 data from the Association of Short Term Lenders (ASTL) which reported increases across all areas of lending, with bridging loan books continuing their upward trend, growing by 2.0% to reach a new high of £7.3 billion. Applications were reported to have risen to £9.7bn, an increase of 5.6% compared to the previous quarter. Completions hit £1.4 billion, an increase of 5.8% on the previous quarter and average LTVs were virtually unchanged at 57.7%, which represented a tiny decrease from 57.8% as outlined in the previous quarter.
Additional data from the Q3 Bridging Trends report also suggested a bounce over the quarter, with bridging loan transactions rebounding from a slower second quarter to total £191 million, representing a marked increase from £165.7 million in Q2. One area within this data which did give a little rise for concern, however, was the continued rise in completion times from 58 days in Q2 2023, to 62 days in Q3.
This may, in part, be down to seasonal factors and a sluggish property market but, even though our conversion rates are still very strong in the marketplace, it’s fair to say that the journey for clients is elongated and there are challenges on applications which, in some instances, will naturally affect conversions.
From an application perspective, greater time is being spent successfully managing customer expectation around the cost and time of a property project. This has been evident throughout 2023 as has an increase in the time being taken to carry out refurbishments, in hiring contractors and processing applications through third parties such as valuers and lawyers.
General market and economic uncertainty, aligned with interest rate turbulence, have also played a key role with many clients delaying decisions as they attempt to weigh up which direction the cost of finance is heading. With the number of property transaction slowing and rates increasing, it’s inevitable that this combination had fuelled uncertainty in certain projects.
So, what is the solution?
An ideal one would revolve around greater stability in the cost of funds and the levelling of the economy. How close we are to that remains to be seen but a more immediate solution is for brokers to lean more heavily on trusted packaging partners who have an unparalleled knowledge of lenders who have the appetite, capacity, and flexibility to write certain types of business.
In addition to delivering the depth and quality of information required to secure a quick decision, aligned with the case management capabilities to ensure that cases convert in a timely manner and that bridging loan transaction levels remain strong for the foreseeable future.
Donna Wells is managing director at Envelop