Market under the microscope - Inching closer to £1bn

Market under the microscope - Inching closer to £1bn


Despite loan-to-values (LTVs) in the mainstream mortgage market outpacing the bridging finance recently, Bridging & Commercial heard exclusively from Duncan Kreeger, Chairman of West One Loans, that this trend will not last and demand from buy-to-let investors is driving the rapid expansion of the bridging industry, which will help LTVs trend upwards.


Mortgage Market Average LTV *

Bridging LTVs (Average 1st Charge)

Q1 2010



Q2 2010



Q3 2010



Q4 2010



Q1 2011



Q2 2011



Q3 2011



Q4 2011



*According to E.Surv Mortgage Monitor













Top Line: Mortgage market average LTV has risen 5.1 per cent since Q1 2010 and LTVs in bridging are not keeping pace with the wider mortgage market and have trended downwards in Q4 2011, after growing for two consecutive quarters. West One Loans believe that the average in Q1 2010 was an anomaly and that LTVs are still up more than three per cent since the start of 2010.

Describing the current state of bridging LTVs Duncan Kreeger, Chairman of West One Loans, said: “LTVs are one of the few areas where the mainstream mortgage market has outpaced the bridging finance sector recently. But it won’t last. The main market is blighted by all manner of issues, mainly revolving around restricted credit and increased capital requirements. High street lenders strained every sinew in pushing out higher LTV mortgages last summer in an attempt to grow their share of the first time buyer market.

“It was flagrant short-termism, and an approach they can’t afford to sustain in the long term. The weak macro-economic conditions, which high-street lenders are hostage to, means they will have to up rates and lower LTVs. LTVs in bridging are up since the start of 2010, and we fully expect them to outpace the main market in 2012. Buy-to-let demand is sky high, and investors are looking to tackle more ambitious projects, which will see LTVs trend upwards.”

The data from West One Loans’ latest bridging loan index, released yesterday, shows that gross lending in bridging stands at £911 million and is nearing £1 billion, a figure West One Loans predicts bridging to hit by 2013.

This figure is £105 million more than the forecast made in the previous Index, which predicted gross lending would reach £806 million in 2011. This highlights that bridging is forming a larger part of the overall mortgage market.

Gross lending in 2011 was 110% higher than in 2010 and December was more than two and a half times higher year-on-year. The volume of loans advanced was 62 per cent higher last year than in 2010 and net lending increased 67 per cent in the same period.

More property investors are turn to bridging as a means to finance their projects, largely due to the inability of mainstream mortgage lenders to cope with high demand for buy-to-let finance.

The average loan size was 28 per cent higher in 2011 than 2010, indicating investors are taking on yet bigger projects. However, the average size of a loan fell from £322,000 in August to £266,000 in December, reflecting the traditional winter slow-down.

LTVs have risen steadily since the beginning of 2010, reflecting the increasingly large loans sought by borrowers, and the strong credit performance of loan portfolios. In 2011 the average first charge LTV (weighted by value) was 47 per cent, up from 44 per cent in 2010. Broken down by quarter, LTVs were at their highest in Q4 2011 when they reached a high of 50 per cent.

Duncan Kreeger explained: “The fact more investors are turning to bridging – particularly buy-to-let landlords – is closely linked to rising LTVs. This is encouraging more investors to turn to bridging, where high LTV loans are more accessible than on the high street.

“Greater appetite for larger and more ambitious projects will keep loan sizes high, which in turn will help support LTVs in 2012. This is in stark contrast to the mainstream mortgage market, where LTVs are beginning to fall after a brief resurgence. We expect LTVs to remain high throughout 2012.”

Low interest rates are also making bridging loans more attractive for buy-to-let investors. The average interest rate on a bridging loan declined year-on-year to 1.41 per cent by the end of 2011, down from 1.64 per cent a year ago.

The lack of first-time buyers in the market is creating much opportunity for property investors as rents are high and property prices are deflated. Duncan Kreeger believes that buy-to-let is the “horse pulling the cart” and is driving the bridging industry forward.

He added: “Despite banks increasing the number of buy-to-let mortgages, they have been unable to keep pace with the proliferation in demand. Buy-to-let lending is still very low by historic standards. In 2011 there were only 124,000 buy-to-let loans, compared to 346,000 in 2007. As a result more landlords are using bridging loans to finance the development of properties they can’t get mortgages on. Demand for bridging loans is sky high, and will continue to push towards the stratosphere in 2012.”

Analysis from West One Loans reveals the market has shifted markedly towards residential finance and away from commercial lending, demonstrating the increasing demand from buy-to-let investors for bridging loans. In 2011, 84 per cent of all loans by volume were to residential property investors, compared to just 70 and 77 per cent in 2009 and 2010 respectively.


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