Bridging lending increased sharply during the third quarter of the year peaking at £140.49m, brushing off volatility that had plagued the financial markets follow the outcome of the EU vote, new figures show.
The volume of bridging loans for Q3 2016 rose by 54% to reach an annual high, according to the Bridging Trends report produced by specialist finance companies MTF, Brightstar Financial, Enness Private Clients, Positive Lending and SPF.
Paul McGonigle, managing director of Positive Lending, said: “The results on the report reflect accurately how our business has seen Q3 with a stronger appetite from both potential clients and lenders. Following Brexit some lenders took a more conservative view, and rightly so as the property market was carefully monitored.”
Demand for bridging loans – short-term secured loans designed to bridge a temporary cash shortfall when acquiring a property – has surged in recent years.
Bridging loans were once perceived as a ‘last resort’ lending option. But with a growing number of borrowers attracted to the greater flexibility offered by alternative finance providers, including no minimum term and no exit fees, it is now expanding significantly faster than the mainstream mortgage market.
Unregulated bridging loans continued to outperform regulated bridging loans, though the gap between unregulated and regulated bridging lending is starting to close, with the number of regulated loans climbing to 49.2% of all lending.
“Bridging volumes are up, with contributor lending reaching £140.49m. This suggests that despite previous Brexit jitters, the market has performed well,” said Kit Thompson, Brightstar’s director of bridging loans.
For the sixth consecutive quarter, mortgage delays were the most popular reason for borrowers to access a bridging loan, coming in at 30% of all bridging volume during Q3 2016, in line with the previous quarter. Refurbishment was the second most popular reason for getting a bridging loan at 23%, following by business purposes at 20%.
Chris Borwick, Associate Director of Savills Private Finance, commented: “Where perhaps the consensus was that the post-Brexit market in short term finance would be extremely challenging, it has actually turned out to be quite resilient. We have certainly seen an increase in most areas with enquiries coming in of all shapes and sizes.
“Market uncertainty has created opportunities for property investors, but also disruptions in normal residential transactions, so investors are looking to bridging finance in order to capitalise.”
Average Loan-To-Value (LTV) levels fell to 46.9% in Q3 from 47.4% in Q2, which could be attributed to a number of specialist first charge lenders removing high LTV products from their ranges.
Average monthly interest rates in bridging dropped to a low of 0.85% in Q3, from 0.88% in the previous quarter and 0.92% in Q3 2015, as cash-rich lenders competed to put money to work. Investors have piled into the sector in search of yield, amid a volatile macro-economic backdrop.
Joshua Elash, director of bridging finance lender MTF said: “The figures are very positive with a large increase in the reported levels of lending. We also see a significant increase in the total percentage of the reported lending activity which is regulated. This invariably is attributable to the implementation of the MCD, with its introduction of regulated consumer buy to let lending.
“This larger total percentage of regulated lending appears to have had an adverse impact on the average time a loan takes to complete, and more positively on the average weighted monthly interest rates being charged. The results continue to point to bridging finance as an important financial tool, with demand remaining strong at sensible LTVs.”