Further interest rate increases over the coming months have become something of a foregone conclusion. The Bank of England recently announced the single biggest hike in base rates in recent history. This paves the way for higher mortgage rates and elevated monthly bills for millions of households.
The UK’s bridging finance sector has not been immune to the whole thing. In fact, they recorded their first average monthly interest rate increase of the year in Q3. Monthly averages continue to hover at around 0.7%, making monthly bridging a uniquely cost-effective facility for strictly short-term purposes.
Looking further ahead, there are those who believe that the average monthly interest rate on bridging loans could reach 1% or higher next year.
Speaking on behalf of Glenhawk, director of sales Jamie Pritchard highlighted the difficulties in accurately predicting the future of the sector. Especially, without knowing how Bank of England base rates will hike further over the coming months.
“Could it be up to five percent next year? Until we know that, it could be that the average bridging rate could be above one percent this time next year,” he said.
“We don’t know but we all have good teams…who are constantly doing work on that to know where it will be.”
The general consensus among market watchers is that the BoE base rate will peak somewhere between 5% and 6% over the coming months. After which it will fall once again to between 2% and 3% in around 12-18 months’ time. In the meantime, the UK’s escalating living-cost crisis is only set to worsen. Particularly as households struggle to pay their energy bills during the winter months.
As average rates continue to hover close to previous record lows, analysts and brokers alike are advising prospective borrowers to consider securing low-rate monthly bridging loans while the opportunity lasts. Such is the dynamic nature of the market as it stands. Especially as holding out even just a few weeks could have a major difference on the affordability of a loan.
“Be prepared, if you have a case where it has not been packaged properly or you haven’t been able to get the answers from the customer…that can have a knock-on effect on the rate,” commented Pritchard.
“If I have a case that is in there for another 60 days and bouncing around in underwriting it will probably have a different rate than the one they came in on potentially. But if you can speed that up yourself, know all the elements and we can communicate with you then you can complete on the transaction quicker with the rate that you wanted as well.”
Lenders should exercise “responsibility and prudence”. This is to avoid promising low rates to prospective customers that change and are unable to be fulfilled. This is particularly important as the prospect of further BoE base rate increases over the coming months. As we know, this will inevitably have a knock-on effect on the bridging loans sector.
Should it come to pass that bridging loan rates reach a peak of 1% next year; the facility could still prove highly cost-effective. Especially, for a broad range of short-term applications. With a monthly interest rate of 1%, the total interest payable on a bridging loan could still be kept below 6%. That is as long as you repay the loan in full within six months.
All of this adds up to a facility far more affordable than many comparable types of conventional loans and mortgages. It also enables borrowers to take advantage of time-critical purchase and investment opportunities.
