Navigate Loan Decline Amid Rising Inflation

The UK bridging finance sector finds itself at a critical juncture as rising inflation and increased borrowing costs create significant headwinds for lenders. Recent data shows UK inflation has jumped to 3.5% from 2.6% in March, while government borrowing rose by £1 billion in April 2025 marking the fourth highest April borrowing since records began in 1993 [1]. This economic environment presents substantial challenges for bridging lenders who must now navigate declining loan volumes while maintaining profitability and market position.

The Impact of Rising Inflation on Bridging Loan Demand

The recent spike in UK inflation to 3.5% is directly affecting bridging loan volumes across the market. This inflationary pressure creates a challenging environment for bridging lenders, as higher inflation typically leads to tighter monetary policy, which can reduce property investment activity and consequently decrease demand for bridging loans. The correlation between these macroeconomic indicators and declining loan volumes suggests bridging lenders need to reassess their risk models and pricing strategies.

Industry experts are divided on the long-term implications. Chris Gardner, CEO at Atelier, maintains an optimistic outlook, stating that with base rates trending downward, everyone would benefit from reduced borrowing costs [1]. However, Paresh Raja from Market Financial Solutions offers a more cautious perspective, suggesting that the Bank of England's response to these inflation figures could affect short-term market sentiment among lenders. He notes that while the BoE had anticipated some resurgence in inflation when making base rate cuts, even April's increase has been factored into monetary policy plans [1]. This indicates that while there may be short-term volatility, the central bank's forward planning has accounted for some inflationary pressure, which could provide a degree of stability for lenders making strategic decisions.

Martyn Smith, Managing Director at Black & White Bridging, highlighted the complexities this introduced to the bridging market: "The rise in inflation to 3.2%... reflects the ongoing pressures of rising energy costs and housing expenses, which remain key drivers. For the mortgage and bridging markets, this creates additional complexity, as higher living costs put further strain on affordability assessments and borrower confidence" [8]. This political and economic context adds complexity to an already challenging market environment for bridging lenders, requiring them to develop more sophisticated approaches to market analysis and client engagement.

Relationship Banking as a Competitive Advantage in a Declining Market

In challenging market conditions, the relationship-driven nature of the loan market can serve as a strategic advantage for bridging lenders. According to J.P. Morgan, the bank loan market is more relationship-driven than other institutional credit markets due to its regulated nature and less transparency of information [2]. This insight highlights that relationship-based lending remains a critical differentiator in the loan market.

For bridging lenders specifically, doubling down on relationship management during periods of declining volumes could be a key strategy for maintaining business. Those who can leverage existing relationships and demonstrate value beyond just competitive rates may be able to capture a larger share of a shrinking market. This approach becomes particularly relevant as the overall bank loan volume was down roughly 4% in the first quarter of 2025, driven by declines in M&A and new money financings [2].

Measuring Relationship Banking Effectiveness

Leading bridging lenders are implementing specific metrics to measure the effectiveness of their relationship banking strategies during periods of declining loan volumes. Key performance indicators being tracked include:

• Client Retention Rate: Measuring the percentage of existing clients who return for additional financing within 18-24 months
• Referral Generation: Tracking the number of new clients acquired through referrals from existing relationships
• Cross-Selling Ratio: Monitoring the average number of different financial products utilized by each client
• Relationship Profitability: Calculating the lifetime value of client relationships versus acquisition costs
• Response Time Metrics: Measuring how quickly relationship managers respond to client inquiries and funding requests

Practical relationship-building strategies for bridging lenders include implementing regular portfolio review sessions with key clients, developing specialized knowledge in clients' target sectors, and creating customized financing solutions that address specific client challenges. Digital relationship management tools can help lenders maintain personalized communication even when face-to-face interactions are limited, ensuring clients receive timely updates on market conditions and potential opportunities relevant to their investment strategies.

A compelling example of relationship banking in action comes from ScotLend, which recently secured a £20 million facility from Shawbrook to bolster its national footprint in the bridging finance market. This partnership, Shawbrook's first transaction supporting a Scottish-based lender, demonstrates how strong institutional relationships can unlock significant funding opportunities even in challenging market conditions [23]. ScotLend's success in securing this facility highlights how relationship-focused lenders can continue to expand their capabilities despite broader market pressures.

The importance of maintaining strong relationships is further emphasized by the Bridging & Development Lenders Association (BDLA), which stated: "The consensus was clear – 2025 is expected to see further growth in capital investment for bridging lenders, with increasing appetite from funding organisations. During the discussion, they did however stress the importance of maintaining disciplined underwriting, effective collections processes, and leveraging data-driven decision-making to appeal to capital providers" [9].

Technology Integration to Streamline Operations During Volume Downturns

As loan volumes decline, bridging lenders must look to technological solutions to maintain profitability and operational efficiency. Digital transformation in financial services through integration of digital platforms, machine learning, and large language models is enhancing financial services accessibility and efficiency, driving innovation in loan origination, underwriting, and portfolio management [3].

This technological shift represents a significant opportunity for bridging lenders facing volume challenges. By implementing AI-driven tools and digital platforms, lenders can reduce operational costs, improve risk assessment accuracy, and maintain profitability even with lower transaction volumes. The trend toward automation-first thinking in mortgage processes suggests that bridging lenders who invest in technology now may be better positioned to weather the current downturn and capitalise on future market recovery.

"What we have built with Blanc Labs as our partner, is a data-centric model which is unique in the Canadian marketplace."
— Darren Lorimer, Senior Vice President and Group Head, Commercial Banking at EQ Bank [10]

The benefits of technology integration extend beyond cost reduction. The UK bridging finance sector demonstrated remarkable efficiency improvements in 2024, with the average completion time for bridging loans decreasing by 23% year-on-year, dropping from 58 days in 2023 to 47 days in 2024 [4]. This reduction reflects the increasing maturity of the bridging finance sector, with both lenders and broker introducers demonstrating enhanced operational capabilities and a deeper understanding of the market as bridging becomes more mainstream [4].

Comprehensive Operational Efficiency Metrics

Beyond completion times, bridging lenders are tracking several key operational efficiency metrics to measure the full impact of digital transformation:

• Processing Cost Reduction: Lenders implementing digital platforms have reported average cost-per-loan reductions of 30-40% through automated document processing and reduced manual intervention [10]
• Staff Productivity Improvements: Digital workflows have enabled lending teams to handle 45-60% more applications with the same headcount, significantly improving productivity metrics [10]
• Error Rate Reduction: Automated validation processes have reduced documentation errors by up to 75%, minimizing costly rework and compliance issues [10]
• Customer Onboarding Efficiency: Digital KYC and AML processes have reduced customer onboarding times from days to hours, with some lenders reporting 80% faster verification processes [10]
• Decision Time Improvement: AI-powered underwriting tools have reduced initial decision times by up to 65%, allowing lenders to provide faster responses to borrowers [10]

The mainstreaming of bridging finance has been a significant trend, with lenders developing more sophisticated operational capabilities to handle increased demand and complexity. As noted in industry reports, "The bridging sector has evolved from a niche financing option to an essential component of the UK property finance landscape, with lenders investing heavily in technology and processes to improve efficiency and customer experience" [4].

Raphael Benggio, Head of Lending for Bridging Finance at MT Finance, noted: "With faster completion times and steady lending volumes, these results show how bridging finance has evolved from an alternative solution to an essential component of the UK property finance landscape" [11]. These efficiency gains highlight how technology adoption and operational improvements can drive significant performance enhancements even in challenging market conditions.

Case Studies in Technology Integration

Several financial institutions have demonstrated measurable improvements through technology integration:

LenddoEFL: This provider of alternative credit scoring solutions migrated to Google Cloud Platform and reduced their server count from 160 to 25 while achieving cost savings of up to 55% [12]. As Florentin Lenoir, Chief of Staff at LenddoEFL, explained: "Before, we had to reserve instances to save costs. By moving to Google Cloud, we're now benefiting from pay-as-you-go pricing and scalability" [12].

EQ Bank: Facing challenges in their commercial lending operations, EQ Bank partnered with Blanc Labs to develop a customized commercial lending credit risk platform. The bank successfully launched the platform within 12 months and fully migrated all loans by November 2021, leading to better data governance, enhanced risk management, and improved user experiences [10].

Gaia: This lender implemented loan management software to automate workflows and integrate with payment processors, allowing them to manage a growing portfolio without expanding their team. Their CEO reported: "The technology made the transition effortless, and gave us the scalability and automation we needed to grow without increasing our team size" [10].

West One Loans: Demonstrating the power of technology-enabled agility, West One recently completed a complex £11.1 million bridging loan in just six days, saving a portfolio landlord £1.4 million in potential losses. The client's original lender had withdrawn at the last minute, placing a £2 million deposit at risk. Through strong industry relationships and digital processes, West One secured a property valuation in just three days and structured the bridge at 54.48% loan-to-value over a 12-month term [23]. This case illustrates how technology can enable extraordinary responsiveness in time-sensitive situations.

Diversification Strategies for Bridging Lenders in a Challenging Market

With traditional bridging loan volumes under pressure, lenders should consider diversification opportunities to maintain revenue streams. In 2025, the focus is expected to shift from refinancing to supporting growth strategies, as corporates take advantage of lower borrowing costs to fund expansion, including both organic growth and mergers and acquisitions [5].

This projection suggests that bridging lenders could benefit from diversifying their product offerings to include financing options that support growth strategies rather than focusing solely on traditional property bridging. By expanding into areas such as acquisition finance for SMEs or specialised development lending, bridging lenders can tap into emerging demand while their core market recovers.

Evidence of shifting borrower patterns already exists in the market. In 2024, auction purchases rose from 7% to 11% of bridging loan purposes, suggesting more landlords and investors are using bridging loans for quick acquisitions [6]. Additionally, chain-break financing declined from 22% to 20%, while re-bridging fell from 9% to 7%, signaling improved borrower confidence and fewer extensions on initial bridging loans [6]. These trends indicate potential diversification opportunities for lenders willing to adapt their offerings to meet evolving market needs.

The private credit market presents a significant opportunity for diversification, having experienced exponential growth to reach $1.6 trillion globally in assets under management by 2023. This expansion is expected to continue, with projections estimating the market will grow to $3.5 trillion globally by 2028 [13]. This growth trajectory suggests that bridging lenders could benefit from expanding into other areas of private credit to capture a share of this rapidly growing market.

Green Financing: A Strategic Diversification Opportunity

One particularly promising diversification avenue is green financing. Over the next 2-5 years, the UK bridging loan market is expected to witness a significant rise in demand for green financing options. This trend is driven by heightened environmental awareness and regulatory pressures encouraging sustainable development. In 2024, sustainable lending initiatives grew by 35%, indicating a strong trajectory toward greener financing solutions in 2025 [17].

Bruntwood's recent securing of a £140 million green loan exemplifies this growing trend [24]. Such green loans typically offer preferential terms for projects meeting specific sustainability criteria, creating a win-win situation for both lenders and borrowers. For bridging lenders, developing similar green financing products represents a strategic opportunity to differentiate their offerings while addressing growing market demand.

Specific green bridging loan products being developed by UK lenders include:

• Energy Efficiency Improvement Loans: Short-term financing specifically for property renovations that improve energy performance certificate (EPC) ratings, often featuring interest rate reductions of 0.25-0.5% for projects achieving specified efficiency improvements [24]
• Green Development Exit Loans: Bridging products for developers who have completed sustainable projects meeting recognized standards (such as BREEAM or LEED certification), offering extended terms or reduced fees [24]
• Renewable Energy Installation Bridging: Specialized short-term financing for the installation of solar panels, heat pumps, or other renewable energy systems in commercial properties [24]
• Green Retrofit Bridging: Loans specifically designed to fund the period between acquisition and green retrofitting of older properties to meet modern sustainability standards [24]

The launch of initiatives like Transition Finance Scotland (TFS), in partnership with the Green Finance Institute (GFI), further demonstrates the growing infrastructure supporting green finance. This initiative aims to accelerate financing of net zero projects by mobilizing private capital into priority decarbonization sectors, bringing together financial services, project developers, and the public sector [24]. For bridging lenders, engaging with such initiatives can provide valuable partnerships and market intelligence to inform their green financing strategies.

Key Diversification Opportunities for Bridging Lenders:

• Green financing for energy-efficient developments and retrofits
• Specialized acquisition finance for SMEs
• Short-term property financing for commercial real estate
• Development exit loans with flexible terms
• Partnering with private credit firms to access new borrower segments

The trend toward diversification is further supported by the rise of nonbank lenders in short-term property financing. In early 2025, nonbank lenders led a surge in this sector, with $4.43 billion in loans year-to-date, surpassing the total activity for the first quarter of 2024 [14]. This shift indicates growing opportunities for bridging lenders to expand their offerings in the commercial real estate sector.

Reassessing Risk Models in Light of Changing Economic Conditions

The current economic environment of rising inflation and increased borrowing costs necessitates a thorough reassessment of risk assessment frameworks by bridging lenders. Paresh Raja from Market Financial Solutions suggested that the Bank of England's response to inflation figures could affect short-term market sentiment among lenders, noting that the BoE had anticipated some resurgence in inflation when it made base rate cuts [1].

This insight highlights the importance of forward-looking risk models for bridging lenders. As inflation and interest rate expectations shift, lenders need to recalibrate their risk assessment frameworks to account for changing borrower profiles and collateral valuations. Those who can accurately price risk in this volatile environment may be able to maintain healthier loan books while still attracting quality borrowers, even as overall market volumes decline.

Specific Underwriting Adaptations for Inflation

Leading bridging lenders are implementing several specific changes to their underwriting criteria and risk assessment models to account for inflation-driven changes in property valuations:

• Adjusted Loan-to-Value (LTV) Ratios: Many lenders have reduced their maximum LTV ratios by 5-10% for certain property types most vulnerable to inflation-driven valuation volatility
• Enhanced Stress Testing: Implementing more rigorous stress testing that factors in potential interest rate increases of 2-3% above current levels
• Inflation-Adjusted Valuation Methodologies: Incorporating inflation projections into property valuation models, particularly for development projects with longer timelines
• Increased Income Coverage Requirements: Raising debt service coverage ratio requirements from typical 1.25x to 1.4-1.5x to account for potential increases in borrower expenses
• Shorter Loan Terms: Reducing maximum loan terms to limit exposure to long-term inflation uncertainty
• More Frequent Portfolio Revaluations: Increasing the frequency of portfolio revaluations from annual to quarterly for higher-risk segments

The bridging finance market has shown signs of responsible risk management despite economic pressures. In 2024, loan-to-value ratios averaged 58%, suggesting responsible lending practices despite interest rate increases [6]. The average monthly interest rate saw a modest increase, rising from 0.86% in 2023 to 0.88% in 2024, reflecting broader economic trends [6]. Additionally, lending remained balanced between regulated and unregulated transactions, indicating stable market conditions despite external pressures [6].

Innovative applications of AI in credit risk management are transforming how lenders evaluate borrowers. A study published in April 2024 highlighted how AI technologies, including deep learning and big data analysis, have been employed to accurately evaluate borrowers' credit status and provide real-time monitoring and early warning systems [15]. These advanced risk assessment tools can help bridging lenders make more informed decisions in a volatile economic environment.

Beyond traditional risk metrics, advanced lending platforms are enabling bridging lenders to monitor unique risk indicators in real-time. These include geospatial risk assessments that identify location-specific risks, alternative credit data sources beyond traditional credit scores, and sentiment analysis tools that monitor public opinion and news related to property markets [18]. By incorporating these advanced data points into their risk frameworks, lenders can make more nuanced decisions that account for the full spectrum of risks in today's volatile market.

Leveraging Data Analytics to Identify Niche Opportunities

Advanced data analytics can help bridging lenders identify underserved market segments or emerging opportunities that may not be immediately apparent. Financial organisations are implementing AI-based tools to improve risk assessment and decision-making processes, enhancing the accuracy and speed of underwriting and portfolio management activities [7].

This trend toward data-driven decision making offers bridging lenders a powerful tool for navigating declining volumes. By leveraging advanced analytics, lenders can identify micro-segments of the market that remain active despite broader downturns, optimise their marketing spend to target these segments more effectively, and develop tailored products that meet specific needs.

Data from Knowledge Bank showed that regulated bridging remained the most searched criterion among brokers in 2024, reinforcing its role as a key financing tool for property transactions [6]. This type of market intelligence can help lenders focus their efforts on segments with sustained demand. Additionally, predictive analytics can help identify early signals of market recovery in specific regions or property types, allowing lenders to position themselves advantageously ahead of competitors as conditions improve.

The adoption of generative AI across the financial ecosystem is accelerating, with financial institutions worldwide integrating large language models and other generative tools into their operations. These technologies are enhancing customer engagement, automating workflows, and extracting insights from vast financial data [16]. For bridging lenders, these tools can provide deeper insights into market trends and borrower behaviors, enabling more targeted and effective lending strategies.

The digital transformation of lending operations has yielded significant efficiency gains for UK bridging lenders. In 2024, the average completion time for bridging loans decreased by 23%, dropping from 58 days in 2023 to 47 days. This enhancement reflects the sector's increasing maturity and the adoption of streamlined processes facilitated by digital technologies [18]. The integration of digital tools such as automated valuations, digital KYC procedures, and instant ID verification has further streamlined application processes, giving tech-savvy lenders a competitive edge in efficiency and processing times [20].

kennek's end-to-end lending platform offers bridging lenders the tools to implement these data-driven strategies effectively. By centralising loan data and providing real-time portfolio insights, the platform enables lenders to identify emerging opportunities and make informed decisions about market positioning and product development. This technology-driven approach can be particularly valuable for bridging lenders seeking to navigate the current market downturn while positioning themselves for future growth.

Regulatory Reforms and Market Competition

Anticipated regulatory reforms by the UK's Financial Conduct Authority (FCA) aim to simplify mortgage issuance and advisory rules, potentially increasing competition in the lending market over the next 2-5 years. These changes are designed to make mortgage modifications more accessible and efficient, aligning with broader priorities to support consumer financial navigation and economic growth [21].

"The FCA's proposed simplification of mortgage rules represents both a challenge and an opportunity for bridging lenders," explains James O'Reilly, head of intermediary partnerships at Leeds Building Society. "While it may increase competition from traditional lenders, it also creates space for innovative bridging products that complement mainstream offerings" [21].

For bridging lenders, these regulatory changes necessitate a strategic response. Those who actively engage with the consultation process and position themselves to capitalize on the resulting market shifts may find new avenues for growth even as traditional bridging loan volumes decline. This might involve developing complementary products that address gaps left by mainstream lenders or creating specialized offerings for market segments that remain underserved despite regulatory simplification.

The regulatory environment is also increasingly focused on climate risk in lending decisions. A recent report by First Street suggests that climate change should be considered a core aspect of creditworthiness when prospective home buyers apply for a mortgage. The analysis links the growing risks from extreme weather such as floods and wildfires to a potential increase in mortgage defaults in hard-hit areas [22]. For bridging lenders, this emerging regulatory focus presents both a challenge and an opportunity to develop climate-resilient lending practices that can differentiate them in an increasingly competitive market.

Conclusion

The UK bridging finance sector faces significant challenges as rising inflation and increased borrowing costs contribute to declining loan volumes. However, the market has demonstrated remarkable resilience, with total gross lending standing at £822.2 million in 2024, just 1% below the historic high of £831 million recorded in 2023, marking the second-highest lending volume since 2015 [4]. This resilience suggests that bridging lenders who take a strategic approach to navigating current challenges can emerge stronger when market conditions improve.

By leveraging relationship banking with measurable KPIs, integrating technology to streamline operations, diversifying product offerings, reassessing risk models with specific adaptations for inflation, and utilising data analytics to identify niche opportunities, bridging lenders can maintain profitability and market position despite the current economic headwinds. Those who embrace these strategies will be well-positioned to capitalise on market recovery and gain competitive advantage in the evolving bridging finance landscape.

The acceleration of digital transformation in lending operations presents a particularly promising avenue for bridging lenders seeking to enhance efficiency and reduce costs. As demonstrated by West One Loans, which recently completed a complex £11.1 million bridging loan in just six days [23], technology-enabled agility can be a significant competitive advantage in today's market. This case highlights how digital transformation can enable bridging lenders to respond rapidly to client needs even in challenging market conditions.

For bridging lenders seeking to implement these strategies, platforms like kennek provide the technological infrastructure to support data-driven decision making, streamlined operations, and effective risk management. By investing in the right technology and adopting a strategic approach to market challenges, bridging lenders can navigate the current downturn and position themselves for long-term success in the UK bridging finance market.

As traditional banks and alternative lenders reassess their approach to bridging and development lending due to changing base rates and tighter credit conditions, those who can adapt quickly and leverage technology effectively will be best positioned to thrive. The successful implementation of these strategies is not just about surviving the current downturn but building a more resilient and ascend efficient business model that can prosper in the evolving financial landscape.

Our Opinion

The current economic climate, marked by rising inflation and fluctuating volumes, underscores a fundamental truth for the UK bridging finance sector: operational excellence and data precision are no longer optional, they are imperative. We believe that navigating this period successfully requires lenders to move beyond traditional methods and embrace integrated technology. Relying on fragmented systems or manual processes introduces unnecessary complexity and inefficiency, precisely what our mission is built to eliminate. A robust, end-to-end platform provides the single source of truth necessary for disciplined underwriting, effective collections, and the real-time portfolio insights capital providers demand, ensuring profitability is maintained even when transaction volumes are challenged.

We see integrated technology as the essential enabler for strategic growth and resilience. It provides the analytical foundation to identify and capitalise on emerging opportunities, such as green finance or specific commercial property segments, and allows for the dynamic reassessment of risk models required in a volatile market. Our platform is designed to provide this agility, allowing lenders to adapt quickly to market shifts and regulatory changes. We are confident that bridging lenders who invest in a comprehensive, data-driven technology infrastructure will not only weather the current headwinds but will be best positioned to lead and innovate as the market evolves.

About the Author

Xavier De Pauw is the co-founder & CFO of kennek, a complete lending software for alternative credit. With 10 years at Merrill Lynch specializing in structured finance, Xavier later co-founded MeDirect Group and MeDirect Bank Belgium, building a €2.5 billion balance sheet. As Fintech Belgium's co-founder and president, he championed industry growth before leading Strategic Innovation at Degroof Petercam, where he drove transformative digital initiatives in private banking.