In an increasingly dynamic and intricate UK property market, bridging and development finance are playing critical roles in meeting a diverse array of borrowing wants and needs. There are many synergies between these product types but there are also some key differences.
Bridging finance: A growing market with increased efficiency
Bridging finance remains a vital tool for landlords, investors and developers looking for short-term funding solutions. Despite economic uncertainties experienced throughout the past 12 to 18 months - including the general election and various fiscal policy changes - Bridging Trends data for 2024 shows that the sector remained resilient.
Total gross lending for the year reached £822.2 million, just 1% below the 2023 peak of £831 million, marking the second-highest lending volume since 2015. Notably, average completion times improved significantly, falling from 58 days in 2023 to 47 days in 2024. This enhanced efficiency highlights how lenders and brokers have refined their processes, relying significantly on trusted packing partners, to make bridging finance more accessible than ever.
For brokers supporting clients with bridging needs, it's important to highlight the growing demand for auction purchases, which rose from 7% to 11% of total loans. This suggests that more landlords and investors are turning to bridging finance as a strategic tool for securing quick acquisitions. Conversely, chain-break finance declined slightly from 22% to 20%, reflecting improved stability in the mainstream mortgage market.
With LTV levels holding steady at 58% and interest rates increasing only slightly to 0.88%, bridging finance remains a viable option for those needing short-term funding solutions. Whether it’s refurbishing an unmortgageable property, facilitating a time-sensitive purchase, or managing cash flow between transactions, bridging finance continues to provide valuable opportunities to meet a wide range of clients' property-related needs.
Development finance: Navigating market challenges and opportunities
For clients undertaking larger-scale projects, development finance provides structured funding aligned with major construction milestones. However, recent data from Glenigan highlights a 19% decline in major project starts in the three months to January 2024, with few schemes over £100 million breaking ground.
While this points to a slowdown in large-scale developments, smaller projects have shown encouraging levels of resilience. Private housing development accounted for 69% of total project starts, with a 39% year-on-year increase, reaching £8.05 billion. In contrast, private apartment construction declined by 48%, indicating a shift in developer focus towards smaller, more manageable projects.
For brokers, this means there is continued demand for development finance, particularly for smaller projects and private housing schemes. However, lender appetite varies widely, especially for first-time developers or those with limited experience.
The value of specialist support
One of the biggest challenges brokers face when navigating bridging and development finance is the level of variation in lender criteria, application requirements, and underwriting expectations. Many advisers, particularly those less familiar with specialist finance, may not realise just how much lender approaches differ across the market.
For example, some development finance lenders focus on large-scale projects with experienced developers, while others specialise in smaller schemes with more flexible criteria. Similarly, bridging lenders have unique risk appetites, service standards, and packaging requirements that can often make or break a deal.
By working with a specialist packager, brokers can streamline the process, access a wider range of funding options, and ensure their clients receive expert guidance tailored to their circumstances. Whether it’s securing fast turnaround bridging finance or structuring the right development funding package, having a knowledgeable partner can make all the difference in securing the most suitable solutions, and ultimately deliver better outcomes for their clients, whether they’re first-time developers, seasoned investors, or landlords looking for short-term opportunities.
