In today’s article we will be considering how the bridging loan market may be impacted by economical changes in 2025, we offer our key predictions for the year, as well as providing practical tips for taking out a bridging loan in 2025.
Current Economical Trends:
- As of late 2023, the UK economy has been experiencing modest growth, recovering from the impacts of the COVID-19 pandemic and Brexit-related adjustments.
- The UK has maintained relatively low unemployment rates, reflecting a tight labour market.
- Earlier in the year, the UK property market experienced a subdued phase with high interest rates impacting both buyers and mortgage approval rates. The Bank of England’s rate cuts, beginning in August, have since started to encourage buyer activity, offering some relief as mortgage rates modestly declined.
Influencing the State of Bridging Loans in 2025:
- Interest Rates and Borrowing Costs: A stable or slightly lower base rate would support lower or more stable bridging loan interest rates. However, when inflation rises, it has a significant impact on interest rates, primarily because central banks, like the Bank of England (BoE), often use interest rate adjustments as a tool to control inflation.
- Property Demand: Bridging loans are heavily tied to the property market, particularly for developers and buyers who need short-term financing. If property demand stabilises or increases, rates could remain competitive as more lenders compete for business. However, a property market downturn could lead to increased risk premiums on loans, pushing rates up.
- Autumn Budget: Current economic conditions affecting the bridging loan market include changes declared in the Autumn budget, with the increase to Stamp Duty Land Tax rates for many property transactions. This will impact affordability for first time buyers and property investors alike.
Key Predictions for Bridging Loans in 2025:
Prediction 1: Inflation Increasing:
- The Office for Budget Responsibility forecasts the annual rate of inflation, as measured by the Consumer Prices Index (CPI), to be higher over the next four years than it expected in March 2024.
- Having stagnated last year, the economy is expected to grow by just over 1% this year, rising to 2% in 2025, before falling to around 1½%, slightly below its estimated potential growth rate of 1⅔%, over the remainder of the forecast. Budget policies push up CPI inflation by around ½ % point at their peak, meaning it is projected to rise to 2.6% in 2025, and then gradually fall back to target. (The Budget Responsibility Committee, 2024)
- When inflation rises, it has a significant impact on interest rates, primarily because central banks, like the Bank of England (BoE), often use interest rate adjustments as a tool to control inflation.
- Short-term interest rates are generally the first to react to inflationary pressures and central bank policy changes. Bridging loans, credit cards, and variable-rate loans tend to see immediate rate hikes following increases in the central bank rate.
Prediction 2: Reduced demand for second homes:
- Changes introduced in the Autumn Budget included the measure to increase the higher rates of Stamp Duty Land Tax (SDLT) on purchases of additional residential properties by individuals and purchases of residential properties by companies from 3 to 5 percentage points above the standard residential rates of SDLT.
The measure also increases the single rate of SDLT payable by companies and other non-natural persons when purchasing residential properties worth more than £500,000, from 15% to 17%.
- Increasing the higher rates of SDLT on purchases of residential property is expected to disincentivise the acquisition of second homes and buy-to-let properties, freeing up housing stock for main home and first-time buyers.
- Affordability is also still relatively stretched at present as a result of the higher interest rate environment, which is acting to dampen housing market activity more generally,” said chief economist Robert Gardner.
He predicted that the boost to activity will be followed by a slump over the next six months, based on what happened after previous stamp duty changes. (Labiak, 2024)
Prediction 3: Alternative Lenders and Increased Competition:
- 2025 could see the rise of fintech lenders and their entry has the potential to reshape the industry significantly, introducing new competition and likely driving more borrower-friendly terms.
- Fintech lenders use advanced algorithms, automation, and AI-powered tools to streamline loan applications and approvals. Bridging loans, designed to offer short-term fast finance, could see approval times shrink from days or weeks to just hours, thanks to fintech innovation.
- By leveraging data analytics and digital document verification, fintech lenders can assess a borrower’s profile faster and more accurately, reducing the need for excessive paperwork and long manual underwriting processes. This speed and efficiency provide a huge advantage in the bridging loan market, where timing is often critical.
- Fintechs often provide user-friendly digital platforms where borrowers can access loan terms, fees, and conditions clearly. This transparency can lead to a more informed borrower base and could pressure traditional lenders to be more transparent as well.
Practical Tips for Taking Out a Bridging Loan in 2025
Since bridging loans are a short-term solution, the flexibility of interest rates can react relatively quickly to broader economic changes. For those looking to secure financing in 2025, staying informed about the BoE’s actions and the inflation outlook will be key to assessing loan affordability.
Working with Lenders and Brokers:
Brokers and financial advisors have the most up to date information on current lending requirements in the market, so they should have their finger on the pulse as to the market changes through 2025. Look beyond the interest rate and consider other factors like fees, flexibility, and reputation. Is a bridging loan right for you? How quickly can this firm provide funds? What’s the application process? What requirements will you need to meet?
Evaluating Loan Terms and Costs:
Borrowers often underestimate the total costs involved with a bridging loan, including interest rates, fees, and additional charges. At BIG we are very transparent about the applicable costs for any loan at the point of enquiry. Common costs include your monthly interest rate, an admin fee, arrangement costs, valuation fees, solicitors’ costs, broker fees and exit fees. Explore what additional costs are incurred if you were to fall into default on your loan and any other potential scenarios. Get a breakdown of fees from the lender and use a bridging loan calculator to estimate total repayments if required.
Exit Strategy Planning:
Many borrowers are caught short with their exit strategy, by failing to accurately anticipate how long it may take to obtain the necessary funds to repay their loan. If 2025 sees a dip in the property market, selling your property to repay a loan could take longer than expected. Develop a clear, realistic, and executable exit strategy before taking out the loan. Consider multiple exit options so you have a plan B (e.g. sale of another asset, refinance, or property sale).
Conclusion: Making an Informed Decision in 2025
In conclusion, 2025 could see a shift in the bridging loan market with volatile interest rates, a downturn in the property market and potential technological advancements in lender’s application processing. However, all remains to be seen, and anything is possible as a new year begins. What are your predictions for 2025?
We look forward to working with our clients and brokers as we move into a brand new year with optimism and loans faster than ever. At BIG Property Finance we are happy to receive enquiries through telephone, email or enquiry form on our website. We aim to provide indicative loan terms within hours and a potential loan offer in a matter of days. We look forward to hearing from you in 2025. Contact us today on 121 348 7830 or at info@bigpropertyfinance.co.uk
