The 2024 EY UK Bridging Market Survey offers a comprehensive look into the evolving landscape of the UK bridging finance sector. Conducted between February and March 2024, the survey gathers insights from 39 lenders and brokers, shedding light on market trends, challenges, and strategic priorities shaping the industry.
Positive Market Sentiment Amid Economic Uncertainty
Despite facing a complex macroeconomic environment, the UK bridging finance market remains optimistic about its growth prospects. According to the survey, 67% of respondents anticipate an increase in annual originations. This positive outlook is highlighted by a reduction in macroeconomic uncertainty compared to the previous year, even as the market adjusts to higher interest rates. The sector’s resilience is evident in its ability to adapt to these financial pressures, maintaining a focus on loan performance and foreclosure activity.
Technological Integration: A Key Strategic Objective
Technology has emerged as a critical area of focus for bridging finance lenders in 2024. An impressive 80% of survey participants view technology investment as a strategic priority, a significant rise from 58% in 2023. This shift underscores the industry’s move towards greater automation and data-driven decision-making, aimed at enhancing loan approval processes, improving risk management, and increasing overall efficiency. The adoption of technology is not just about keeping pace with competitors; it’s about redefining the customer journey and adding value through expert judgment in key areas.
Market Characteristics and Trends
Several key trends are shaping the UK bridging finance market:
· Interest Rates and Loan Terms: There has been a notable increase in average monthly interest rates, with most loans now priced between 1.00% and 1.25%. This rise reflects the broader economic environment, where increased base rates are successfully passed on to customers. Additionally, the average loan term has extended, with a significant number of loans now spanning 9-12 months, highlighting a trend towards longer-term financing solutions.
· Loan Sizes and LTV’s: The average loan size has grown, with more loans exceeding £600k. This trend indicates that bridging loans are increasingly used for higher-value properties, possibly driven by inflationary effects and a changing property mix. Despite the increase in loan sizes, the average loan-to-value (LTV) ratios have remained stable, primarily within the 60%-70% range. This stability suggests a balanced approach to risk management within the sector.
· Borrower Preferences: Refurbishment remains the leading reason for obtaining bridging loans, consistent with trends observed in previous years. Auction purchases have also become more popular, reflecting a market preference for quick, reliable financing options in a competitive property environment. This shift aligns with the rising demand for bridging loans that can offer the speed and certainty required for auction properties.
Challenges and Competitive Dynamics
The survey identifies several critical challenges facing the bridging finance market:
· Loan Performance and Access to Capital: Loan performance has been highlighted as the most significant challenge, followed closely by the ability to access equity capital for growth. In a higher interest rate environment, managing loan performance is crucial for maintaining profitability and stability. The demand for growth capital has increased, reflecting lenders’ need to adapt to competitive pressures and expand their market presence.
· Increased Competition: Competition within the sector has intensified, with both traditional banks and challenger banks increasing their focus on bridging finance. This heightened competition drives lenders to diversify their product offerings and seek strategic growth opportunities through mergers and acquisitions. Notably, 28% of respondents are considering M&A activities as part of their growth strategy.
Macroeconomic Impact on the Bridging Market
The macroeconomic outlook for 2024 presents a mixed picture for the UK bridging finance market. While 53% of respondents believe that the macroeconomic environment will positively impact the sector, 39% foresee potential negative effects. Concerns include geopolitical tensions, such as the conflicts in Ukraine and the Middle East, and uncertainties surrounding general elections in the UK and the US.
Despite these concerns, the bridging finance market remains attractive due to its ability to provide short-term debt solutions in an uncertain economic climate. The flexibility and speed of bridging loans make them a valuable option for borrowers navigating fluctuating interest rates and inflationary pressures.
Environmental, Social, and Governance (ESG) Considerations
ESG strategies are becoming increasingly important for bridging finance lenders. The survey indicates that 74% of respondents plan to implement an ESG strategy within the next 12 months, up from 58% in 2023. While technology investment and product diversification are immediate priorities, sustainability remains a long-term strategic imperative. Lenders are exploring various green finance tools, including launching ESG-related bridging products and implementing carbon offset measures.
Conclusion
The EY UK Bridging Market Survey 2024 highlights the resilience and adaptability of the bridging finance sector amidst economic challenges. With a strong emphasis on technology, strategic capital management, and competitive positioning, the market is well-equipped to navigate the complexities of 2024 and beyond. EY’s Financial Services Strategy & Transactions team stands ready to support bridging finance lenders and brokers with tailored advisory services, ensuring they achieve their strategic goals in this dynamic environment.