There is a hue and cry amid uncertainty in the property market. The Bank of London has increased the base rates from 2.25% to 3% in November 2022.

It’s higher than that of the great depression in 2008. We know that UK’s economy relies heavily on the property market.

The rising interest rates have a trickle-down effect on mortgages and housing prices. The economy is going through hard times, but bridging finance remains hot in demand.

Let’s find out why it is so. This article will show the common economic indicators and how they affect the living standards in the UK.

 Plus, you will know how the current market trends affect the bridge lending industry. At last, we will discuss some benefits of bridging loans.

Why the Bank of England increases the base rate?

The current inflation rates have risen to double figures reaching 10.1%. As the consumer price index indicates an alarming situation for citizens, the BoE is taking measures to control the increasing prices.

Well, many factors might have contributed to the high prices of goods. One of them is the Ukraine-Russia war. In 2021, the UK imported £4.5 billion worth of gas, oil, and coal.

Since the UK has sanctioned imports from Russia, the direct consequences result in high inflation.

Apart from the War, the post-pandemic rebound also played its part in increasing the demand.

A sudden demand for goods in the market furthers the prices to the sky. To solve the inflation problem, the Bank of London devised a plan.

The plan is to increase the base rate, so people stop spending money. It would decrease the demand and, thereby, inflation.

How do the higher interest rates affect the housing industry?

A large chunk of the population in the UK still owns a home on a mortgage. Having the highest number of bridging finance mortgage borrowers across Europe, the country faces the wrath of high-interest rates.

So, when the rates go up, the SVR mortgage interest rates also increase. So, the borrowers now have to pay more due to rising interest rates.

Also, high rates would result in slowing down the market. Previously, people would get a mortgage on a new house because they could easily afford it.

On top of it, it brought hoards of house buyers into the market. Now, the UK govt has devised a monetary policy to control inflation. According to BoE, they would keep increasing the interest rate to control inflation.

 So, new house buyers would find it hard to get mortgages, and those with ongoing mortgages would have to pay more than before in their installments.

In a nutshell, the housing sector in the UK may face less activity by the end of 2022.

Bridging finance demand increasing day by day:

Short-term loans seem unlikely to have better demand than mainstream, long-term financing options.

However, it’s not so. Bridging loans are still performing much better than other loan types.

According to bridging trends, the third quarter of the fiscal year 2022 shows more bridging loan transactions than Q1 and Q2.

To demonstrate, gross bridge lending in Q3 was valued at £214.7 million, which is £36 million more than the previous quarter.

Since the mortgage rates are rising in sync with the interest rates, people are wary of applying for a mortgage.

Contrasting, bridging finance hasn’t shown an increase in the rates. The reason is that these specialized loans do not depend on bank rates necessarily.

The overall monthly bridging loan rates haven’t increased much compared to mortgages.

According to Forbes, the average mortgage rate has increased from 3.22% in Jan to 7.08% in Oct.

It shows an increase of more than 3% in one year. Experts say the rates will be higher in the following years.

That is why borrowers tend to go for bridging finance compared to mortgages. They prefer paying more in the short term than huge sums in the long term of 15 or 30 years.

How can bridging loans help in the current economic conditions?

The current uncertainty in the property market has pushed investors/ developers and homeowners to P2P lending platforms UK.

People are creating opportunities out of these economic conditions using bridging loans. You can also take a short-term loan for the property market.

Chain Break:

Right now, people are averse to investments. They fear losing their money if their borrowers default.

Instead, they find bridging loans useful to break property chains. Most people have lost their mortgages or can’t afford to have one. Plus, they fail to bring their house buyers on board.

In these situations, bridging loans can easily break chains and help you get the funds to buy new property.

As of Q3, 22% of the borrowers have taken gap finance to break a property chain.

Fund a Business:

Bridging finance is used for more than just property projects. As living costs become high daily, businesses have fallen prey to inflation.

Most startups can’t make both ends meet under such conditions. Also, some businesses are laying off their employees to get rid of expenses.

Others have completely shut down as they can’t bear the costs. In such an overwhelming situation, bridging loans can save businesses from falling apart.

Recent bridging trends show that 11% of bridging finance has been used to sustain businesses’ cashflows in Q3 of 2022.

Final Words:

The rate increase has provided to be a blessing in disguise for bridging lenders such as P2P lending platforms Uk and other specialized lenders.

There are alot of reasons to sustain this argument. High inflation and the costs of living crisis have turned people towards Short-term bridging loans UK.

We have covered some main points regarding the popularity of alternative funding. If you have gone through them, then let us know your feedback.