The total value of bridging loan lending in the UK has jumped by 22% in the past year alone, new market analysis by Henry Dannell has shown.

According to the mortgage broker’s findings, the purchase of an investment property has been the most common motivation for taking a loan.

Bridging loans, which are typically taken out for up to 12 months but often for a shorter duration, are designed to allow a buyer to proceed with an acquisition without the need of selling an existing asset.

Henry Dannell reported that the second quarter quarter of 2022 registered a 13.8% increase in bridging lending from Q1, after the total amount lent through bridging loans climbed from £156.8m to £178.4m.

Figures also show that in the past year, bridging lending has increased even more, soaring by 21.8% since Q1 2021’s figure of £144.5m. 

However, Henry Dannell noted that these increases have still left lending totals 1.4% behind the figures immediately prior to the pandemic when, in Q4 2019, the total reached £180.9m.

The most common reason cited for taking out a bridging loan in Q2 2022 was to fund an investment property purchase. Henry Dannell stated that this means the majority of people taking out this type of finance aren’t doing so to fund their own home purchases, but to fund what are likely to be additional home purchases, which they will rent out in order to generate income. This was the case for 24% of all bridging loan applicants in this quarter. 

Another 21% of applicants needed the loan because they are part of a chain which has broken, therefore creating the need for a short-term loan, while 13% of loans were given to people who need the money in order to make significant, heavy refurbishments to a property.

Henry Dannell director, Geoff Garrett, commented: “An increase in bridging loans does not signify that people are struggling financially. Such loans are taken in order to fund major purchases or investments but can only be granted to people who can prove they have larger, longer-term loans coming their way, such as a mortgage. 

“Instead, an increase in bridging loan totals indicates that the systems in place are struggling to keep up with demand and can’t match the desired pace of buyers and sellers. The housing market, for example, is moving more slowly than it did a year ago, even two and three years ago.

“At the same time, buyer demand is extraordinarily high and activity is through the roof. This causes delays in the conveyancing and buying process which, in turn, increases the need for bridging loans.

“However, with the cost of living and interest rates rising so rapidly, one has to expect to see a slight drop off in buyer demand and, therefore, a decline in bridge financing over the next year or so.”

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