Second charge bridging loan volumes are at a record high, according to a new report analysing the industry.

The new analysis by West One Loans, the lender behind the Bridging Index, has shown that annual lending of short term second charge loans in 2013 was £778 million.

An additional £229 million in gross lending in the twelve month period represents growth of 42 per cent in annual short term secured lending since the start of 2013, when this stood at £549 million.

Over the last two years, short-term second charge lending has increased by 124 per cent, more than doubling gross lending of £357 million in the twelve months ending January 2012.

Duncan Kreeger, Director at West One Loans, commented: “Consumer confidence is driving a surge in secured loans for consumables, which is good news for the wider economy and stimulates our collective spending power.

“But by contrast, short-term secured loans tend to be focused on capital investment.  Businesses are expanding, and want to capitalize on opportunities with fast and flexible finance.

“Property investors and developers have formed a growing portion of the frenzy for new loans in recent months – Britain’s property market is a prime example of this escalating demand for short-term finance.”

Trends in Short Term Lending: 1st and 2nd Charge

Over the last two years volumes of second charge short-term loans have outpaced traditional first charge bridging loans.

Second charge loan volumes have increased by 57 per cent since January 2012 compared to 51 per cent growth in lending volumes for 1st charge loans.

However, 2013 saw faster volume growth in the first charge market. Second charge short term loans increased in number by 14 per cent between January 2013 and January 2014. This compares to stronger growth in first charge loan volumes, up 67 per cent over the last twelve months.

Second charge short term loans are considerably smaller on average than first charge short term loans.

The average short term second charge loan has increased in value to reach £260,000, up 31 per cent compared to an average of £199,000 in the twelve months to January 2013.

By contrast, the average traditional short term bridging loan (acting as the primary charge against a property) was for £457,000 – or 76 per cent more than the second charge equivalent.

Interest rates

Short term interest rates have fallen to a record low for second charge loans.

In line with increasingly competitive rates across the short term lending markets, the average monthly interest rate on a short-term second charge loan now stands at 1.26 per cent, down from 1.49 per cent in January 2013.

Mark Abrahams, CEO of West One Loans, concluded: “As we shed the gloom that has hung over the UK for far too many years, opportunities to invest are becoming more competitive.

“In many areas this is starting to inch up the cost of capital. But a new appetite for the most immediate and lucrative projects is still opening up new markets and partnerships for UK lenders.

“Meanwhile investors are hungry for new opportunities. They want to be involved in tangible projects that add serious value. The best lenders are making those connections with credit-worthy opportunities in business and property in the UK.”