Introduction:
In today’s article we will be reflecting on our previous predictions for market changes to the bridging loan market in 2025. We will be reviewing recent economic trends as we move through the year and the current outlook for the months ahead.
Our Previous Predictions for Bridging Loans in 2025
Prediction 1: Inflation Increasing
Overall, while the early months of 2025 have seen a slight easing in inflation, underlying price pressures persist, and economic forecasts suggest potential fluctuations in the rate throughout the year.
- At the beginning of 2025, the UK has experienced a slight easing in inflation rates. In January, the Consumer Prices Index (CPI) rose by 3.0% over the previous 12 months. This rate decreased marginally to 2.8% in February.
- The reduction in February’s inflation was primarily influenced by a decline in clothing and footwear prices, which saw their first negative annual rate since October 2021. Additionally, housing and household services contributed to the downward trend, with owner occupiers’ housing costs rising by 7.5% in the year to February, down from 8.0% in January. (Consumer Price Inflation team, 2025)
- Despite this modest decline, the inflation rate remains above the Bank of England’s target of 2%. The central bank forecasts that inflation may rise to 3.7% by the third quarter of 2025 due to factors such as higher energy prices, before gradually decreasing to around 2.5% during 2026 and reaching the 2% target in 2027. (Romei, 2025)
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.
In recent months, the Bank of England has adjusted its base rate to address evolving economic conditions:
- August 2024: The base rate was reduced from 5.25% to 5%.
- November 2024: A further reduction brought the rate down to 4.75%.
- February 2025: The rate was lowered again to 4.5%.
These successive cuts were implemented in response to easing inflationary pressures and a slowdown in economic growth. By reducing the base rate, the Bank aims to stimulate borrowing and investment, thereby supporting economic activity. Which is good news for bridging.
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.
- Changes come into effect from the 1st of April 2025, so time will soon tell how the rate changes have impacted demand for second homes.
- In February 2025, mortgage approvals declined to 65,481, the lowest in six months. This decrease is attributed to buyers expediting purchases ahead of an anticipated transaction tax increase in April. (Reuters, 2025)
- The Office for Budget Responsibility forecasts modest house price growth, with average prices rising from £269,000 in January 2025 to £295,000 by 2029. Mortgage rates are expected to peak at 4.7% in 2028, up from 3.7% in 2024, potentially impacting affordability for homeowners seeking refinancing. (Housing Market Indices Team, 2025)
Prediction 3: Alternative Lenders and Increased Competition
We predicted that 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.
In 2025, the UK’s bridging loan market has seen notable activity from fintech lenders:
- Allica Bank’s Acquisition of Tuscan Capital: In August 2024, Allica Bank, a British challenger bank, acquired specialist bridging lender Tuscan Capital. This strategic move enabled Allica to enter the bridging finance sector, offering short-term property loans to a broader range of clients. (Alternative Credit Investor, 2024)
- Zempler Bank’s Focus on Microbusinesses: Formerly known as Cashplus, Zempler Bank has rebranded and reported significant growth by catering to underserved microbusinesses. While primarily offering business current accounts and loans, its expansion strategy may encompass bridging finance solutions tailored for small enterprises. (The Times, 2024)
- LandlordInvest’s Continued Growth: Established in 2014, LandlordInvest is a peer-to-peer lending platform specializing in residential, commercial, and semi-commercial bridging and development loans. It continues to provide property-backed Innovative Finance ISAs to UK investors.
While these developments highlight the dynamic nature of the UK’s bridging loan market, specific information on new fintech entrants in 2025 remains limited.
Conclusion: Making an Informed Decision in 2025
In conclusion, inflation remains above the Bank of England’s target of 2%, however continued reductions in the base rate are promising for bridging loan interest rates. Modest house price growth could also provide opportunities for investors expanding their portfolios, and continued entrants to the bridging loan space should increase choices for borrowers and competition.
After a strong start to 2025 for BIG, we look forward to working with more clients and brokers as we move into summer with optimism and loans faster than ever.
At BIG Property Finance we are happy to receive enquiries by 0121 348 7830, info@bigpropertyfinance.co.uk 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.
References
Alternative Credit Investor. (2024, December 6). Bridging market predicted to grow in 2025. Retrieved from Alternative Credit Investor: https://alternativecreditinvestor.com/2024/12/06/bridging-market-predicted-to-grow-in-2025/?utm_source=chatgpt.com
Consumer Price Inflation team. (2025, March 26). Consumer price inflation, UK: February 2025. Retrieved from Office for National Statistics: https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/february2025?utm_source=chatgpt.com
Housing Market Indices Team. (2025, February 19). Private rent and house prices, UK: February 2025. Retrieved from Office for National Statistics: https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/privaterentandhousepricesuk/february2025?utm_source=chatgpt.com
Labiak, M. (2024, November 1). Stamp duty change expected to spark homebuying rush. Retrieved November 4, 2024, from BBC News: https://www.bbc.co.uk/news/articles/cq52z84v0gyo
Reuters. (2025, March 31). UK mortgage approvals fall to six-month low ahead of purchase tax rise. Retrieved from Reuters: https://www.reuters.com/world/uk/uk-mortgage-approvals-consumer-credit-cool-bit-february-2025-03-31/?utm_source=chatgpt.com
Romei, V. (2025, March 26). UK inflation slows more than expected to 2.8%. Retrieved from Financial Times: https://www.ft.com/content/0c61c058-4e19-49f1-b9b5-7f79c7de4679?utm_source=chatgpt.com
The Budget Responsibility Committee. (2024, October 30). Economic and fiscal outlook. Retrieved November 4, 2024, from Office for Budget Responsibility: https://obr.uk/docs/dlm_uploads/OBR_Economic_and_fiscal_outlook_Oct_2024.pdf
The Times. (2024, November 25). Zempler Bank reaps reward from focus on smaller firms. (B. Martin, Editor) Retrieved from The Times: https://www.thetimes.com/business-money/economics/article/zempler-bank-reaps-reward-from-focus-on-smaller-firms-bnvs0zw0t?utm_source=chatgpt.com
