Leveraging Bridging to refinance regulated loans for the longer term

    Thomas Cantor - Head of Bridging Finance 

We've seen finance markets change on a few words, or actions from those in power. 

Whether the promise of a referendum on membership to the EU, former Prime minister David Cameron's resigning, which caused Stirling to hit its lowest level since 1985 or the mini-budget from Kwasi Kwarteng back in September 2022, ironically titled "The Growth  Plan". These actions had and are still having long-term affects for the wider public and their borrowing decisions. 

The need to be flexible, and quick with finances to secure funding is imperative especially as a small percentage increase in rates can often have a great impact.  While a flat, or rising interest rate environment may cause limitations when looking at mainstream sources of funds for borrowers, a strong viable exit strategy can see the utilisation of bridging in the short term.

Is refinancing a hot topic in the current climate?

Fundamentally refinancing involves replacing an existing loan or debt obligation with a new agreement, ideally with beneficial terms for the borrower. Refinancing can vary from reducing interest payments, consolidating debt, providing access to additional funds, and improving personal or business liquidity to name-but-a-few reasons. You may look to refinance, when the conditions for a longer-term loan are not perceived as positive, and if a borrower believes by waiting, they may be able to secure beneficial finance terms on a long-term loan. 

Current environment 

As the UK slid into a recession in February 2024, are there lessons to be learnt from past financial crises? In times of fluctuations and increase costs, short-term funding often sees a spike as funds is needed to cover gaps, as borrowers look for longer term solutions which may offer greater cost efficiencies, whether that's profitability or being able to pay bills.

The five years that followed the financial crisis of 2008/2009, saw the value of bridging loans across the industry rise by 360%. Partly due to the optimism in the market, and the need for short-term lending with the presumption that borrowers would be able to refinance onto 'better' deals.

Falling interest rates, and with bridging providing a viable alternative to those borrowers rejected by mainstream lenders, this created favourable conditions and options for borrowers. 

Rise of regulated bridging?

Landlords and investors alike may adopt a more risk-averse approach as they wait lower interest rates which many are forecasting for the later part of 2024. If there is less non-regulated bridging, will we see growth in bridging for regulated borrowers? According to 'Bridging Trends' there have been steady increases in regulated bridging, with a 44% increase in 2022, and grew to 4.87% by end of Q2 2023.

Regulated bridging has risen in demand with borrowers recognising the advantages of its ability to provide stability and security amidst uncertain market conditions. Halifax house price index reported, house prices rose five straight months, into 2024. A rise in pricing could start to indicate a competitive buyer market.

Home buyers must act quickly to secure opportunities, possibly with the use of regulated bridging to fund the purchase, with the exit to the bridge being the sale of existing home. 

The elevated BoE rates, when compared to recent years has also brought about the challenge of affordability for borrowers. This in turn impacted on borrowers as they struggled to meet affordability imposed by lenders or saw further challenges on monthly spending led by inflationary pressures.

Bridging trends reported chain-break were the most popular reasons for bridging loans in 2023, replacing investment purchases. The reliance on speed and flexibility allowed transactions to complete, and with West One completing a bridging deal, on average, in 33 days, this is 25 days faster than the reported industry average of 58 days.  

Will regulated show continued growth in 2024? With Regulated activity rising year-on-year, with market share growing to 46.3%, from 44% in 2022, and 40.8% in 2021. This sharp growth is undoubtedly in part to interest rate rises and product changes and withdrawals due to financial sensitivity around SWAP and interest rates. 

In conclusion, the landscape of finance is ever-changing, influenced by both macroeconomic factors and shifts in regulatory environments. Leveraging bridging loans to refinance for the longer term can be a strategic approach, as it can offer certainty over a short period of time, when the wider market may show signs of volatility.

With regulated activity steadily increasing and market share on the rise, the growth of regulated bridging in 2024 may continue, until we start to see drastic reduction in BoE base rate. In looking at the complexities of the financial landscape, leveraging bridging loans for long-term refinancing stands as a prudent choice, offering both flexibility and stability and speed.