Rates matter in the short term lending market too, but there are good reasons to see bridging as slightly less rate-sensitive in terms of loan demand and performance. This is partly because rates usually do not rise during the loan term. Additionally, lenders are funded differently; only a proportion of bridging lenders are reliant on external funding, while others like Hope Capital are privately funded so are not directly affected by the Bank of England rate rise.
As the bridging market has become more popular, competition has lowered rates by two or three per cent or sometimes more over the past year, causing a dichotomy between rising mainstream rates and falling ones in short term lending. Rates differ widely from lender to lender according to the degree of service, speed, flexibility and risk required.
Rates have dropped again this January as a mini price war takes hold in the bridging market, mirroring what happened last year, as short term lenders strive to kick start the year on a high. As the previous few years have reflected however, the bridging market is typically less price sensitive than the mainstream mortgage market. This is particularly the case amongst developers and other borrowers with slightly more complex requirements. While everyone wants the lowest rate possible, often achieving completion in just a few days, or obtaining lending in more complex circumstances will take priority over rate. As a result, modestly higher rates would be unlikely to dampen demand significantly.