Bridging lending soars past £2bn
A new report has claimed that gross bridging lending has soared 26 per cent to £2.02 billion
Section: Features
A new report has claimed that gross bridging lending has soared 26 per cent to £2.02 billion.
It represents an increase of more than one quarter (26 per cent) compared to the previous twelve months, up to 1st March, according to the latest West One Bridging Index.
When measured on a bi-monthly basis, the Index states that annual growth contrasts with a slight seasonal drop. Gross bridging lending of £343 million in the last two months is down 18 per cent compared to November and December, when gross lending totalled £419 million.
The report went on to add: “Despite such seasonal factors, lending in this two-month period, from 1st January to 1st March 2014, is up 23 per cent compared to just £280 million in the same two months in 2013.”
Duncan Kreeger, Director of West One Loans, commented: “Just as the UK economy has turned a corner, demand for the right type of finance is on an exciting new path. In the last few months the market for bridging loans has been dramatically busier than at the same point last year. Businesses need finance to invest and expand, and every element of the property industry is gaining momentum by the week.
“In relative terms, the winter months are often the quietest time of the year for the property market. But this year bridging activity has been powering ahead regardless. And now the property market is showing the first signs of the usual spring bounce – on top of all the energy that’s already in the system. So we are set for a formidable few months, and the best bridging lenders will be at the forefront, making the most of every opportunity.”
Trends in the bridging Industry
A greater number of loans, in terms of volume, is the main factor behind annual growth in gross bridging lending, the Index states. Loan volumes in the twelve months ending 1st March were 34 per cent higher than in the previous twelve months.
This comes despite a seasonal fall in volumes of 16 per cent between the final two months of 2013 and the first two months of 2014. This dip in January and February is responsible for the recent bi-monthly seasonal slowdown in gross bridging lending when measured by value.
Meanwhile, the average size of a bridging loan was largely unchanged, up 4.4 per cent on an annual basis but down slightly by 3.3 per cent in the last two months compared to the final two months of 2013.
This leaves the value of the average bridging loan at £444,000 over the first two months of 2014.
Duncan added: “Bigger deals are always exciting, and as property prices grow so will the size of loans. But the biggest factor behind the industry’s expansion is definitely the sheer volume of deals.
“That’s great for lenders and particularly good news for brokers. But it matters most to those property professionals and business people who depend on alternative finance to make their projects reality.
“The most exciting aspect of the last six months is the spare capacity for bigger loans – on top of all the latest expansion in volumes. So as confidence spreads through the economy and the property community reacts, this will be another source of significant growth for the amount of lending by value.”
Loan to Value Ratios
Loan to value ratios in the bridging industry have fallen on both an annual basis and more recently on a bi-monthly basis. In the two months to 1st March the average LTV was 45.2 per cent, 2.9 percentage points lower than in the preceding two months when LTVs stood at 48.2 per cent.
On an annual basis, loan to value ratios have fallen by 0.8 percentage points, to 46.3 per cent in the year to February 2014, compared to 47.1 per cent in the year to February 2013.
Duncan concluded: “As the economy heats up and the property market goes from strength to strength, demand for bridging loans keeps growing. Meanwhile, these same factors mean the security underpinning loans is becoming more valuable – forming a virtuous circle.
“Bridging has even further to go, and it’s clear the value of properties used as security will be less of a restraint as we move through 2014. Lower loan to value ratios mean the growth of the bridging industry is underpinned more solidly than ever before.”
Bridging vs Mainstream mortgages
Mark Abrahams, CEO of West One Loans, added: “Bridging is becoming ever more competitive – in stark contrast to more traditional forms of finance.
“For example, standard variable rates in the mainstream mortgage market have been rising since April 2012, according to the Bank of England. But our analysis shows that bridging rates have fallen steadily over the last two years.
“Despite this competition, investors in bridging loans can still earn up to five times the monthly interest available elsewhere. And lower LTVs mean investors’ money is secured more safely than ever.”
Rob Thomas, ex-Bank of England economist and author of the ‘What is the new normal – mortgage lending in 2014’ report, commented: “In common with the mainstream mortgage market, bridging lending has shown strong growth over the past year. But there are clear differences between the two markets as well – interest rates for bridging finance have been falling while rates have recently been edging up in the mortgage market. Average LTVs have also been falling on bridging lending whilst for mainstream mortgages they have been rising, in part reflecting lenders’ willingness to return to lending at 95 per cent under government schemes such as NewBuy and the Help-to-Buy guarantee scheme.”
Source: Bridging & Commercial — https://bridgingandcommercial.co.uk/bridging-lending-soars-past-163-2bn