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Bridging Thrives As The Traditional Mortgage Market Falters

Skyrocketing mortgage rates and growing economic uncertainty were never going to have a positive impact on the conventional mortgage market. October saw the first monthly fall in average house prices for some time and overall house price growth is tipped for a further decline over the coming months.

The simple fact of the matter is that with the living-cost crisis and interest rates heading in entirely the wrong direction, most people have no intention of taking out binding long-term mortgages.

But while all this has been going on, one comparatively niche segment of the mortgage market has been thriving. Demand for short-term bridging finance for property purchases is at an all-time high, as borrowers from all backgrounds seek flexible and affordable alternatives to traditional mortgages.

“We have seen increased demand for bridging and, happily, the perception of bridging as a viable source of finance is changing for the better,” explained Jade Keval, sales director at SoMo.

Ms. Keval said that there had been a particularly sizeable influx of applications from homeowners looking to relocate, who did not want to go through the long and potentially painful process of arranging a conventional mortgage.

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“This was happening anyway, but it has been accelerated as a shortage of properties coming to the market is driving up the competition; it is advantageous to be a cash buyer,” she explained.

“There is so much pressure on property buyers when supply is low and demand is high. Bridging means people do not have to miss out because they are stuck in a buying chain.”

She also welcomed the growing popularity of bridging finance among mainstream buyers, which has for many years been seen as something of a questionable alternative to conventional High Street products.

“Anything that helps legitimize and normalize so-called ‘alternative finance’ is welcomed by us,” she said.

Record Demand For Bridging Loans For Chain Breaks

For more than two years, the most popular application for a bridging loan in the UK had been purchasing investment properties. That was, until the third quarter of this year when it was overtaken in the rankings by a new front-runner.

Today, the single most popular use for bridging finance is to opt out of the conventional property chain and purchase a property outright for cash. This applies to homeowners looking to relocate, who have no intention of watching their planned property purchases fall through for any reason.

With a traditional mortgage, prospective homebuyers faced the prospect of having to wait up to 12 weeks to complete their transactions. In the meantime, any sale agreed on their current home could fall through and they could be beaten to the punch by a competing bidder on their next home.

According to some experts, this happens to as many as two in five prospective buyers.

With bridging finance, the funds needed to complete the transaction can be organized much quicker – often within a few working days. The homeowner borrows against the value of their current home, uses the funds to buy their next home outright, and then repays the balance in full when their previous property sells.

In doing so, they benefit from the ability to beat competing bidders to the punch, while enjoying access to all the benefits associated with purchasing properties for cash. A flexible, convenient, and significantly more affordable option than a traditional mortgage, a bridging loan can be wrapped up in just a few months at a rate as low as 0.5% per month.

Just as long as traditional mortgage borrowing remains as unaffordable as it is right now, the appeal of a short-term bridging loan will continue to grow. –

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