Oleksandra Hapanovych, partnership manager and copywriter at Jooble (pictured above), explores how technology, sustainability, and diversification are revolutionising the industry.
In today’s rapidly evolving financial landscape, bridging finance plays a crucial role in providing short-term funding solutions for individuals and businesses and has experienced significant growth in recent years.
Increased demand and changing market dynamics
In 2022, the total gross lending amount reached £716.2m — the highest figure in three years.
Bridging finance is stepping into the spotlight as a reliable and agile solution for borrowers and investors.
According to the latest Bridging Trends report from short-term finance lender MT Finance, bridging loans were predominantly used for funding investment purchases in 2022, accounting for 23% of the market.
However, the report also highlighted a substantial increase in demand for unregulated refinance, which accounted for 11% of the bridging market.
Other popular uses included chain breaks, heavy refurbishment, business purposes, regulated refinance, re-bridge finance, and auction purchases.
These trends indicate the versatility and adaptability of bridging finance in meeting the evolving needs of borrowers.
Technological advancements
The traditional model of bridging finance has long relied on manual processes and extensive paperwork, leading to delays and inefficiencies.
Now with the advent of technology-driven solutions, the industry is experiencing a transformative shift.
Automation and digital platforms have streamlined the lending process, reducing paperwork and accelerating loan approvals.
Artificial intelligence (AI) and machine learning are revolutionizing risk assessment in bridging finance.
AI algorithms can analyse vast amounts of data to determine creditworthiness and assess risk more accurately.
By leveraging machine learning models, lenders can make data-driven decisions, leading to improved loan underwriting processes.
These technological advancements enable faster loan approvals and reduce the reliance on subjective evaluations, benefiting both lenders and borrowers.
Sustainability practices
Sustainability and ethical practices are driving innovation in the sector.
ESG considerations have gained prominence with lenders increasingly focusing on the impact of their investments.
Socially responsible lending and impact investing have emerged as significant trends, addressing societal and environmental challenges while generating financial returns.
Lenders are integrating ESG factors into their lending practices, enabling borrowers to access financing for eco-friendly projects or socially responsible initiatives.
Green bridging finance initiatives support environmentally friendly projects, promoting sustainability in the industry.
Diversification of funding sources
To further diversify funding sources, bridging finance has embraced crowdfunding and P2P lending platforms.
These platforms connect borrowers directly with individual investors, providing access to alternative sources of capital.
Institutional investors are also showing increasing interest in bridging finance, attracted by the higher yields and shorter investment periods compared to traditional lending options.
The securitization of bridging loan portfolios allows lenders to package and sell their loans, attracting a wider pool of investors and increasing liquidity in the market.
This diversification of funding sources contributes to the growth and stability of the industry.
The future of bridging finance and embracing innovation
Open banking and data-driven decision making will continue to drive efficiency and enable better risk management.
Alternative credit scoring models will provide a more comprehensive assessment of borrowers, expanding access to finance for those with limited credit history.
Real-time risk assessment and underwriting will further streamline processes, reducing the time from application to disbursement.
The bridging finance industry is undergoing significant transformation due to emerging trends and innovative solutions.
Technological advancements, sustainability practices, and diversification of funding sources are reshaping the industry and creating new opportunities.
Stakeholders must adapt to these trends to remain competitive and leverage the benefits offered by automation, blockchain, AI, and ESG considerations.
By embracing these changes, the bridging finance sector can continue to provide reliable and agile solutions for borrowers and investors in the evolving financial landscape.