The Top Reasons for Using Short-Term Bridging Loans in 2024

Short-Term Bridging Loans in 2024

Short-term bridging loans have been increasing in popularity in recent years, with the value of the bridging loans market expected to reach £10.9 billion by the end of 2024. Furthermore, the use of bridging loans is expected to grow by 25% in the next five years. Additionally, the portion of unregulated bridging loans rose from 49% to 54.2% during the first half of 2024, indicating growing demand among investors.

The Benefits of a Short-Term Bridging Loan

Short-term bridging loans help mitigate financial risks associated with property chains. The surge in bridging loan interest can largely be attributed to borrowers aiming to avoid chain breaks, which now account for 23% of all loans, up from 19% in the previous quarter. Property chains, where multiple transactions depend on each other, are notoriously fragile and can collapse if one link fails. Bridging loans can support individuals within a chain by providing the necessary funds to keep transactions moving. Therefore, reducing the risk of chain collapse. This stability benefits not only individual buyers and sellers but also the broader property market by maintaining transaction fluidity.

One of the main reasons for the continued popularity of short-term bridging loans is their ability to enable quick property purchases. Homeowners often need to sell their existing property in order to have sufficient funds to complete the purchase. Bridging loans provide the necessary funds to secure the new property. Therefore, preventing the loss of an opportunity due to delays in selling the existing property. This quick action capability sets bridging loans apart from traditional mortgages, which usually involve lengthy approval processes.

Auction purchases are another scenario where short-term bridging loans are invaluable. Demand for auction finance has experienced a notable uptick, rising from 9% in Q1 to 14% in Q2. This increase suggests that more buyers are taking advantage of undervalued properties within a relatively stagnant housing market. Properties sold at auction typically require full payment within a short timeframe, often within as little as 28 days. This tight deadline is usually unmanageable with conventional mortgage processes, making bridging loans an attractive alternative. Buyers can secure the necessary funds quickly, ensuring they meet auction deadlines and capitalise on potential bargains.

Another significant use of short-term bridging loans is in property renovation projects. Investors and homeowners often come across properties that need substantial refurbishment before they can be sold or rented out. Bridging loans offer upfront capital required to finance renovations, enabling property owners to quickly enhance the value of their investments. Once the property is renovated and sold or refinanced with a long-term mortgage, the bridging loan can be repaid.

Short-term bridging loans also provide flexibility for property owners needing to release equity from their properties. Sometimes owners need to access funds tied up in their property to finance other ventures or cover unexpected expenses. Bridging loans allow for this by offering a temporary financial solution until a more permanent arrangement is found. For example, a long-term mortgage or the sale of the property. This flexibility is particularly beneficial for businesses or individuals facing urgent cash flow issues.

Furthermore, short-term bridging loans are advantageous for property developers needing to secure land or buildings swiftly to start new projects. In property development, the ability to act quickly on prime opportunities can be the difference between securing a lucrative project and missing out. Bridging loans facilitate the rapid acquisition of sites, allowing developers to commence their projects without delay. Once development is underway and substantial financing is arranged, the bridging loan can be repaid, keeping the project on schedule and within budget.

Institutional investors and large-scale property companies also benefit from short-term bridging loans. These entities often engage in multiple transactions simultaneously, requiring a flexible and responsive financing solution. Bridging loans provide the necessary liquidity to manage overlapping transactions, ensuring smooth operations and the ability to seize market opportunities as they arise.

Furthermore, short-term bridging loans can serve as a temporary solution during refinancing processes. Property owners looking to refinance their existing mortgages to take advantage of better rates or terms may encounter delays that jeopardise their financial plans. Bridging loans can cover the interim period, ensuring continuous financial stability until refinancing is complete. This can be particularly advantageous in fluctuating market conditions where locking in favourable terms quickly is essential.

Short-Term Bridging Loan Case Study

In this case study we’ve taken a look at how a short-term overdraft helped one of our clients’. In this case the client was able to secure an Alternative Overdraft against existing properties in their portfolio at a 65% Loan to Value (LTV). As a result, they were able to create a dynamic cash pot ready for auction scenarios.

By adopting this strategic approach, the client used the funds to acquire properties at auction. They could then allocate £20,000 to £30,000 for internal refurbishments due to the facility’s flexibility.

This allowed them to choose between refinancing the property onto a buy-to-let mortgage, replenishing the overdraft pot, or repeating the process. Alternatively, they could sell the refurbished properties, retain profits, and reinvest the funds into the overdraft pot for future opportunities.

With a lifespan of up to 24 months, the Alternative Overdraft provided the client with ample time to execute their investment strategy. The exit plan involved refinancing the secured properties, creating an unbroken cycle of strategic property acquisition and value enhancement.

This case study demonstrates how the Alternative Overdraft can transform auction-based property investment, providing investors with financial flexibility and strategic advantages.

Conclusion

In summary, short-term bridging loans remain a key component of the property market in 2024. They offer a range of applications that address the diverse needs of investors, developers, and homeowners. Their ability to provide rapid, flexible financing solutions makes them indispensable for property purchases, renovations, auction acquisitions, equity release, development projects, and more. As traditional lending avenues become more restrictive, the importance of bridging loans continues to grow, ensuring that opportunities can be seized and financial stability maintained across the property sector. The adaptability of these loans highlights their essential role in meeting the demands of the property market.

If you would like to learn more about our short-term loans, you can read more here. If you have any further questions or would like to make an enquiry, don’t hesitate to contact one of our BDMs. Alternatively, you can contact us on 020 8349 5190.