The value of bridging loans in Q1 of this year has been estimated to be £125.35m, which is a 3.4% increase on the last quarter of 2015, say figures collated by MTF and four financial services companies.
One reason for this increase is the delay in setting up mortgages, which causes borrowers to need short-term finance. In the data, it is estimated that 42% of bridging loans are a result of such delays.
Another cause of needing a bridging loan is to enable the purchase of a new home before the sale of an existing one has been completed.
There has been an increase in people buying property for investment purposes, either to redevelop or to rent out. Often, investors purchase these properties at auctions, hoping to find one at a low price. A bridging loan is often used to secure the property until a long-term mortgage is arranged.
After the recession of 2008, building projects slumped, but 2016 has seen a housing boom with an upsurge in property renovations and new housing projects. Bridging loans provide quick access to finance these.
The bridging loan can be structured so that money is drawn in instalments after each phase of the project is completed. By formulating an effective financial plan, developers can make sure that a project is finished on time and within budget. Bridging loans can play a key role here too.
Though bridging loans can be high interest, they represent a useful way of raising short-term cash for property deals.