The UK bridging market: What does 2021 hold?

The coronavirus pandemic has brought about unprecedented challenges for societies across the globe, and virtually all sectors of the UK economy have been impacted.

The UK bridging market is no different and faced challenges most notably during the first lockdown period. However, since the housing market reopened, we have seen a flurry of activity in this space, helped by pent-up demand from the months spent in lockdown and a temporary cut in stamp duty. As a result, housing transaction numbers have recovered remarkably well, which has helped drive strong appetite in the bridging market, with record numbers of applications between July and September 2020, according to the latest ASTL figures.

This demand reflects what we’ve seen at Shawbrook, with an increase in clients seeking bridging loans for heavy refurbishment projects for HMOs and converting commercial property. Even with the ongoing pandemic creating challenges, a recent poll of our broker partners revealed that 53% have experienced the same trends, as investors look for quick ways to maximise opportunities before the closure of the stamp duty holiday. The spike in demand for heavy refurb products includes schemes that involve permitted development of currently used commercial assets. With the government relaxing planning rules, this has certainly presented an additional opportunity for investors to grow their portfolios — as well as adding to the demand for bridging loans.

Another good indication of a bounce back in the bridging market can be seen from the latest data on auction activity. Auctions play a key role within this market and are an important driver of demand, as loans are often used to fund auction purchases if the buyer does not have the capital upfront. The latest data from Essential Information Group’s national auction analysis shows that activity has seen a strong recovery since spring and early summer of this year. In September, total amounts raised stood 38.8% above the same month in 2019.

We see this momentum in the bridging sector carrying across into this year. However, there are still challenges that lie ahead. With the Coronavirus Job Retention Scheme coming to an end in March 2021, the resulting falls in disposable incomes will put further pressure on the market. The end of the stamp duty holiday at the same time will also likely result in a reduction of transaction numbers in Q2, as potential buyers bring their purchases forward. 

Looking ahead to this year, these factors make for an unclear picture of how the bridging market will fare, but as the vaccine begins to be rolled out across the UK, the end of the pandemic feels ever closer — although further potential lockdown periods in the new year should not be disregarded. We expect investors will use bridging in the short term to take advantage of the opportunities on offer, but even beyond that there are well established growth trends in the market that we believe will resume. From a lender’s point of view, we will be prepared for the inevitable spike in activity, working closely with the broker community to offer support. We believe the bridging market has shown incredible resilience, and are optimistic about the long-term outlook for the property market as a whole.

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