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The bridging industry has seen significant growth over the past few years. Half of the respondents to the latest EY UK Bridging Market Study - which surveyed 40 bridging finance lenders - estimate the size of the market to be between £3bn and £5bn with almost a third estimating it to be in excess of £5bn.
The growth of the market is down to a number of factors, but one of the most significant has to be the fact that bridging is no longer seen as a niche form of finance.
The main uses for bridging loans were for mortgage delays on residential purchases, according to the EY study, but the main use now is ‘business purposes. A third of respondents said ‘business purposes’ is the most popular reason why borrowers now obtain a bridging loan, while less than a fifth said mortgage delays.
This shift towards bridging for business purposes is also supported by the fact that the average loan size for lenders responding to the survey is now between £500k and £800k, with 29% of respondents saying they expect the average bridging loan size to further increase over the next 12 months.
So, what does this mean?
It may well say something about the fact that standard mortgages are now less likely to be delayed! But more importantly, it says a lot about the type of lender commercial borrowers are now turning to for business finance.
The study does not specify what these ‘business purposes’ are, but we have certainly seen a huge increase in the number of landlords and developers who are looking to brokers to help them access bridging finance.
For example, often, developers and investors need to move quickly on a deal or risk losing the opportunity. So, fast finance can offer a solution, while others may turn to bridging to fund refurbishment before moving onto a longer-term deal.
The EY study found that refurbishment is the second most popular reason why borrowers are obtaining bridging loans. From a business point of view, bridging can be a useful option if certain refurbishments need to be made – for example, EPC requirements – before long term finance can be obtained.
While business lending is becoming more common as a reason for obtaining a bridging loan, there are still fewer lenders willing to lend when there is a commercial element to the deal, or if the entire loan is being used for business purposes.