The UK bridging loan market has experienced remarkable growth in recent years, with loan books reaching record highs. According to the Bridging & Development Lenders Association (BDLA), bridging loan books hit £8.1 billion in Q1 2024, marking a 6.8% increase from the previous quarter, and continued to rise to nearly £8.4 billion in Q2 2024 [6]. This growth trajectory has continued, with loan books surpassing £9 billion for the first time in Q3 2024, growing by 7.6% to £9.01 billion [7]. However, this expansion comes with heightened risk as non-performing loan (NPL) ratios begin to climb. Recent data shows the sector problem loan ratio rose by 0.2% quarter-on-quarter to 2.5% in early 2025 [1], with a concerning 32.4% year-on-year increase in loans in default [7].
This uptick in NPLs is particularly significant for bridging lenders, whose business model relies on quick turnaround and high-value loans. The increase suggests deteriorating borrower financial health across multiple sectors, which could disproportionately impact bridging loans that often serve as emergency or transitional financing. Financial reports from banks reveal that sector asset risks have increased, particularly for mid-sized banks and state-owned banks from real estate-related exposure [1]. For bridging lenders specifically, this trend reveals a concerning vulnerability as their business model depends on rapid capital recycling and high-value property-backed loans.
What makes bridging lenders uniquely vulnerable in this environment is their exposure to property markets and development projects. Retail mortgages in speculative segments and loans linked to distressed developers are driving higher problem loans [1], directly affecting the collateral that secures bridging finance. The US reciprocal tariffs pose additional potential asset risks for lenders with significant exposure to foreign investment clients [1], creating a complex risk environment that demands sophisticated management approaches.
The bridging loan market's attractiveness stems from its flexibility and quick access to funds, especially for property developers facing funding gaps left by traditional banks. However, this sector carries a higher risk profile, with average LTV ratios around 58%, meaning that even a 40% drop in property prices could lead to significant impairments [11]. The short-term nature of these loans, combined with high-interest rates and potential defaults, necessitates robust risk management strategies.
For SME banks and fintech lenders operating in this space, the challenges are particularly acute. These institutions often lack the extensive recovery infrastructure of larger banks, making them more vulnerable to NPL increases. Additionally, their typically smaller balance sheets mean that even modest increases in problem loans can have outsized impacts on overall financial health and regulatory capital requirements.
The regulatory landscape for debt recovery is evolving, presenting both opportunities and challenges for bridging lenders. Recent legislative implementations have supported bad debt recoveries by improving borrowers' willingness to repay and accelerating collateral resolution. However, debt recovery through court processes has become more protracted due to the lack of legal right to seize collateral under current legislation [1].
The implementation of Resolution 42 has been particularly impactful, supporting banks' bad debt recoveries by improving borrowers' willingness to repay and accelerating collateral resolution. However, the limitations around collateral seizure under the current Credit Institution Law have extended recovery timelines significantly [1]. These legislative constraints have direct implications for bridging lenders, who must now develop alternative recovery strategies that work within the current legal framework while still protecting their interests.
A deeper analysis of the legislative environment reveals that debt recovery through the court process has become increasingly challenging. The lack of legal right to seize collateral under the current 2024 Credit Institution Law has significantly extended resolution timelines [1]. This creates a particular challenge for bridging lenders, whose business model relies on quick resolution of troubled loans to free up capital for new lending opportunities.
In the UK, the Financial Conduct Authority (FCA) has recently initiated a consultation to simplify mortgage issuance and advisory rules. On May 7, 2025, the FCA proposed measures aimed at enhancing borrowing accessibility and financial flexibility for consumers, including making mortgage modifications more efficient and affordable [8]. While these changes primarily target traditional mortgages, they signal a regulatory direction that could impact how bridging lenders approach troubled loans and recovery processes.
For bridging lenders, who rely heavily on property as security, the limitations around collateral seizure present significant obstacles. The inability to quickly realise assets in default scenarios extends the timeline for resolving non-performing loans, potentially increasing losses and tying up capital that could otherwise be deployed for new lending opportunities.
How can bridging lenders adapt their recovery strategies within these constraints? Forward-thinking lenders are implementing multi-faceted approaches that include:
These adaptations allow bridging lenders to maximise the benefits of recent regulatory shifts while mitigating the challenges posed by limitations on collateral seizure.
For fintech lenders and SME banks, navigating these legislative changes requires particular attention to compliance frameworks and recovery process design. Their typically leaner operational structures mean they must be especially strategic in how they approach troubled loan management, potentially leveraging technology solutions to enhance efficiency without expanding headcount.
The macroeconomic environment presents additional challenges for bridging lenders. The UK's borrowing rose by £1 billion in April 2025, marking the fourth highest April borrowing since records began in 1993. This follows inflation data showing CPI rising to 3.5% from 2.6% in March [2]. These twin pressures of increased government borrowing and rising inflation create a complex economic backdrop that directly impacts bridging lenders' risk profiles.
Higher inflation may erode property values relative to loan amounts, while increased borrowing could signal future interest rate volatility. These macroeconomic factors necessitate more stringent underwriting criteria to ensure borrowers can successfully exit bridging loans even if economic conditions deteriorate further.
Industry experts have noted the potential impact of these economic indicators on lending practices. Paresh Raja from Market Financial Solutions suggested that the Bank of England's response to these figures could affect short-term market sentiment among lenders, though he noted that the BoE had anticipated some resurgence in inflation when it made base rate cuts [2]. This perspective highlights the importance of incorporating macroeconomic forecasting into underwriting decisions.
What specific underwriting adjustments should bridging lenders consider? The most effective approach involves recalibrating risk assessment methodologies to account for:
By implementing these enhanced underwriting standards, bridging lenders can better protect their portfolios against the dual threats of inflation and economic uncertainty.
For export credit agencies and institutional investors in alternative credit, the inflation and borrowing trends require particular attention to cross-border risks and currency exposures. These institutions must develop sophisticated approaches to underwriting that account for both domestic economic factors and international trade dynamics, especially given the potential impact of US reciprocal tariffs on certain sectors [1].
In the face of rising NPLs, technology offers bridging lenders powerful tools for early risk detection and proactive intervention. Financial institutions are increasingly integrating AI technologies to enhance credit risk management. These AI applications, including machine learning and large language models, enable more accurate borrower assessments, real-time monitoring, and early risk detection [3].
The adoption of AI-driven risk management represents a significant opportunity for bridging lenders to address rising NPL ratios. By implementing advanced analytics and automated monitoring systems, lenders can identify deteriorating loan performance earlier in the cycle, allowing for intervention before default occurs. This technological approach is particularly valuable for bridging lenders who operate with compressed timelines and need to make rapid decisions about risk mitigation.
One of the key challenges facing bridging lenders is the inability to effectively identify early warning signs of loan deterioration, resulting in reactive rather than proactive risk management and higher NPL ratios. Advanced technology solutions directly address this challenge by providing real-time monitoring capabilities and predictive analytics.
A compelling example of technology's impact comes from Point Predictive, a solutions provider that uses artificial intelligence to combat fraud. Their industry consortium has surpassed 650 members, including lenders, banks, fintechs, and dealer groups nationwide. The consortium has analyzed over 270 million applications representing over $4 trillion in origination value, establishing it as the industry's most comprehensive repository of fraud intelligence [3]. This demonstrates how collaborative technology platforms can enhance risk management across the lending ecosystem.
According to recent data from the Bank of England, "75% of financial firms in the UK are already using AI, with an additional 10% planning to adopt it over the next three years" [9]. This widespread adoption underscores the growing recognition of AI's value in risk management and operational efficiency.
Specific early warning indicators that bridging lenders should monitor include:
How does technology transform the risk management process for bridging lenders? Advanced platforms can:
kennek's end-to-end lending platform exemplifies this approach, providing bridging lenders with real-time portfolio visibility and automated risk monitoring capabilities. By centralising data and processes, the platform reduces operational risk while enabling faster, more informed decisions about troubled loans. For bridging lenders specifically, the platform's ability to integrate with existing systems and provide customized workflow configuration adapts to each institution's unique structure, processes, and compliance requirements.
For fintech companies and SME banks, technology solutions like data-driven early warning systems for inventory can serve as models for loan portfolio management. These systems use statistical principles to identify unusual patterns before critical events occur, allowing managers to focus on exceptions rather than all aspects of the portfolio [3]. This approach is directly applicable to loan monitoring, where early identification of deteriorating loans is essential for effective intervention.
The quality of collateral valuation has emerged as a critical factor in managing NPL exposure. Traditional valuation methods may not adequately capture the increased volatility in certain market segments, leaving lenders exposed if borrowers default. Recent insights reveal that collateral quality and sector exposure are significant drivers of NPL increases [1], highlighting the need for more sophisticated valuation frameworks.
For bridging lenders, who often finance properties in transitional states or development projects, this underscores the importance of enhancing collateral valuation methodologies to account for market volatility, sector-specific risks, and potential regulatory changes. A more robust approach ensures adequate security coverage even if property markets experience downward pressure.
A significant challenge identified in the industry is outdated collateral valuation methodologies that fail to account for sector-specific volatility, leading to inadequate security coverage when borrowers default. This is particularly relevant for bridging lenders who operate in specialized market segments with unique risk profiles.
What elements should a modern collateral valuation framework include? Leading bridging lenders are implementing systems that incorporate:
By strengthening collateral valuation practices, bridging lenders can reduce their exposure to losses even when loans become non-performing, providing an essential layer of protection in an increasingly uncertain market.
For investment firms and institutional investors in alternative credit, robust collateral valuation frameworks are particularly important when assessing bridging loan opportunities. These sophisticated investors require transparency and confidence in the underlying security valuations, making advanced valuation methodologies a competitive advantage for bridging lenders seeking institutional funding.
Loan structure itself can serve as a powerful risk mitigation tool. A recent example demonstrates this principle in action: West One Loans completed a complex £11.1 million bridging loan in just six days, structured at 54.48% loan-to-value (LTV) over a 12-month term [4]. This relatively conservative LTV ratio provides significant protection against market downturns, while the 12-month term balances flexibility with clear exit expectations.
This case study illustrates how strategic loan structuring can mitigate risk while meeting client needs. The loan saved £1.4 million in potential losses for an experienced portfolio landlord who had only 10 days left to complete the purchase of a £14 million apartment block after the original lender had withdrawn at the last minute, placing a £2 million deposit at risk [4]. The loan was secured through strong industry relationships and a property valuation completed in just three days, demonstrating how efficient processes can support responsible lending even in urgent situations.
Industry analysis has identified inflexible loan structures that lack adaptability to changing market conditions as a key factor restricting options for managing troubled loans before they become non-performing. This insight underscores the importance of building flexibility into loan terms from the outset.
What specific structural elements can enhance risk management? Forward-thinking bridging lenders are incorporating:
These structural innovations allow bridging lenders to maintain profitability while creating mechanisms for early intervention when loans show signs of distress.
The evolution of Net Asset Value (NAV) lending provides valuable insights for bridging lenders seeking to enhance their loan structures. NAV lending has grown significantly, with cumulative annual volume exceeding £1 billion around 2017 and compounding at approximately 100% per annum in subsequent years [13]. This growth accelerated during the financial crisis following the COVID-19 pandemic and further expanded in late 2022 due to tightening monetary policy. The structural innovations in this adjacent market offer potential templates for bridging lenders to adapt.
For fintech lenders and credit platforms, agile loan structures represent an opportunity to differentiate their offerings in the competitive bridging market. By leveraging technology to enable more sophisticated loan structures and monitoring capabilities, these institutions can offer borrowers greater flexibility while maintaining robust risk controls.
The blurring lines between banks and private credit presents both opportunities and challenges for traditional financial institutions. Analyses from major banks reveal that while lending to non-depository financial institutions has significantly increased, traditional commercial and industrial lending has seen minimal growth [5]. This trend toward strategic collaboration between different types of financial institutions offers a model for bridging lenders seeking to enhance their debt recovery capabilities.
By partnering with specialised firms that have complementary expertise in areas such as legal proceedings, property management, or distressed asset sales, bridging lenders can overcome some of the limitations imposed by current legislation while improving recovery rates on non-performing loans. These strategic alliances allow lenders to access specialised knowledge and resources without building these capabilities in-house.
Major Wall Street banks are increasingly collaborating with private credit firms like KKR and Apollo. This partnership approach allows banks to complement non-depository financial institutions (NDFIs) in private credit lending through forward fund flow arrangements [5]. Bridging lenders can adopt similar collaborative models to enhance their recovery capabilities.
A practical example of successful collaboration comes from LMG, which reported a 30% growth in commercial settlements by investing in initiatives to boost commercial broker productivity. These initiatives include the integration of the Commercial Lending Excellence (CLE) platform into LMG's proprietary system, dedicated referral hubs for residential brokers to connect clients with commercial finance experts, and knowledge-sharing networks for specialist insights [3]. This model demonstrates how strategic partnerships can drive growth while enhancing operational capabilities.
The measurable impact of strategic partnerships on NPL recovery can be substantial. Case studies from adjacent lending sectors demonstrate that specialized partnerships can:
What types of partnerships are most valuable for bridging lenders? The most effective collaborations include:
kennek's platform facilitates these partnerships through its open architecture and API-first design, allowing bridging lenders to integrate specialised services directly into their workflow. This collaborative approach enables more effective management of non-performing loans while maintaining focus on core lending activities.
For private debt funds and institutional investors, strategic partnerships with bridging lenders can provide access to attractive risk-adjusted returns while leveraging the specialized expertise of sector-focused lenders. These partnerships can take various forms, from direct investment in loan portfolios to joint ventures that combine institutional capital with operational expertise.
The rising NPL ratios in the bridging loan sector demand a comprehensive response that addresses both immediate challenges and long-term structural issues. By combining enhanced underwriting standards, advanced technology solutions, robust collateral valuation frameworks, agile loan structures, and strategic partnerships, bridging lenders can effectively manage risk while maintaining growth in an increasingly complex market.
As banks anticipate increased capital requirements under frameworks like Basel III Endgame in the U.S. and Basel IV globally, they are reducing loans with high capital charges. This shift opens opportunities for private capital in asset-based markets, offering attractive valuations and favorable fundamentals compared to private corporate markets [15]. Bridging lenders can position themselves to capitalize on this trend by implementing robust risk management frameworks that allow them to safely expand into spaces being vacated by traditional banks.
The most successful lenders will be those who adopt a proactive stance, implementing early warning systems and intervention protocols that address potential defaults before they materialise. This approach requires investment in both technology and expertise, but the return on this investment—in the form of reduced NPLs and improved portfolio performance—justifies the commitment.
Recent industry data underscores the continued growth potential in the bridging sector, with applications increasing by 6.7% in Q3 2024, reaching £10.9 billion [7]. This strong pipeline indicates sustained demand for bridging finance solutions, driven by property market dynamics and the need for flexible funding options. However, to capitalize on this opportunity while managing risk effectively, bridging lenders must focus on operational efficiency through technology adoption.
The industry is already making progress in this area, with the average completion time for bridging loans decreasing by 23% year-on-year, from 58 days in 2023 to 47 days in 2024 [17]. This improvement reflects enhanced operational efficiency that not only improves customer satisfaction but also reduces the window during which market conditions might deteriorate and increase default risk.
As the regulatory and economic landscape continues to evolve, with initiatives like the FCA's consultation on mortgage rule simplifications [8], bridging lenders must remain adaptable, continuously refining their risk management strategies to address emerging challenges. Those who successfully navigate this environment will not only protect their existing portfolios but position themselves for sustainable growth in the years ahead.
For SME banks, fintech lenders, export credit agencies, and investment firms operating in or considering the bridging loan market, the strategies outlined in this article provide a roadmap for effective risk management in an increasingly complex environment. By implementing robust risk controls, leveraging technology, and forming strategic partnerships, these institutions can participate in the growth of the bridging sector while effectively managing the challenges posed by rising NPLs.
The rising non-performing loan ratios in the bridging sector underscore a critical challenge: the market's rapid growth has outpaced the risk management capabilities of legacy systems. We see this as a fundamental issue; relying on manual processes and fragmented data prevents the real-time visibility and proactive intervention necessary in today's complex environment. The constraints imposed by current legislation on collateral seizure and the volatility introduced by macroeconomic factors like inflation and borrowing trends further highlight the urgent need for change. We maintain that effective risk management is no longer achievable with siloed tools; it demands an integrated, technology-first approach that provides comprehensive data, automated monitoring, and predictive analytics across the entire loan lifecycle. This is essential for identifying early warning signs and acting decisively before loans deteriorate.
Our perspective is that bridging lenders must adopt a multi-faceted strategy, underpinned by robust technology infrastructure. This requires implementing data-driven underwriting, continuously updating collateral valuations based on real-time market conditions, structuring agile loan terms informed by performance data, and leveraging strategic partnerships for enhanced recovery. We provide the platform that enables this, centralising data and workflows to overcome operational silos and facilitate seamless integration with best-in-class services. We are confident that lenders who embrace this integrated, technology-first approach will not only navigate the current challenges effectively but also capitalise on the significant opportunities emerging as private capital increasingly targets asset-based lending. This proactive stance, enabled by sophisticated infrastructure, is necessary for sustainable growth and making lenders' lives genuinely simpler.
Xavier De Pauw is co-founder & CFO of kennek, specializing in lending software for alternative credit. With 10 years at Merrill Lynch in structured finance, Xavier 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 fintech innovation before leading Strategic Innovation at Degroof Petercam, where his expertise in financial technology transformed lending operations.
[1] Legislatory shift can support recovery of bad debts, Vietnam Investment Review
[2] Bridging lenders urged to stay agile amid rising borrowing and inflation, Bridging & Commercial
[3] Point Predictive's fraud consortium surpasses 650 members, Auto Remarketing
[4] West One completes £11m bridging loan in six days, The Intermediary
[5] Growth of Private Credit and Bank Partnerships, Financial Times
[6] Bridging loan books break through £8bn, The BDLA
[7] Bridging lending continues record-breaking growth, The BDLA
[8] UK financial watchdog consults on steps to simplify mortgage rules, Reuters
[9] Artificial Intelligence in UK Financial Services 2024, Bank of England
[10] Private Credit 2025: UK Trends and Developments, Chambers Practice Guides
[11] The Attractiveness of UK Bridge Lending, Funds Society
[13] NAV Lending, Wikipedia
[15] Private Credit: Asset-Based Finance Shines as Lending Landscape Evolves, PIMCO
[17] Bridging Trends in the UK: Resilient Market and Improved Efficiency, Bridging Loan Directory