Refurbishment remains the primary driver of bridging finance, despite a slight year-on-year decline, with expectations that demand will strengthen in 2025 as affordability pressures ease.
According to specialist lender Octane Capital, analysis of the EY Bridging Report indicates that refurbishment was the most common reason for borrowers accessing bridging finance in 2023, accounting for 33% of activity.
This was followed by auction purchases (19%) and mortgage delays (16%). While refurbishment demand has declined from 35% in 2022 and 50% in 2021, Octane Capital anticipates a reversal of this trend in the coming year.
However the outlook for the bridging market is set to improve as borrowing costs decline.
IMPROVED AFFORDABILITY
February’s Bank of England rate cut from 4.75% to 4.5%, along with indications of further reductions, is expected to improve the affordability of bridging finance.
Octane Capital’s analysis suggests that the cost of a typical £200,000 refurbishment loan currently stands at approximately £26,000, including interest and fees.
As rates decline, bridging loans should become a more attractive option for property investors and developers seeking short-term funding solutions.
ENERGY EFFICIENCY
Beyond cost considerations, regulatory changes are likely to fuel renewed demand for refurbishment finance. The Labour Party has proposed that all privately rented properties must achieve a minimum Energy Performance Certificate (EPC) rating of C by 2030 to remain lettable.
This policy, alongside rising energy costs, is expected to accelerate landlord investment in energy-efficient improvements.
CRITICAL TOOL
Jonathan Samuels, Chief Executive of Octane Capital, says: “Bridging finance continues to be a critical tool for investors looking to refurbish properties, particularly in the face of evolving regulatory pressures.
“While demand has softened in recent years, we anticipate a resurgence as borrowing costs decrease and landlords prioritise EPC improvements ahead of 2030.
“The ability to finance upgrades efficiently will be key to ensuring compliance and managing operational costs in the years ahead.”
