Demand for bridging loans surged last year, as a growing number of property investors turned to short-term finance solutions, which typically offer a much faster time to completion than high-street lenders, in order to finance the completion of property deals.
The latest Bridging Trends data shows that bridging loan volume rose £50.1m, or 11.5%, to £482.61m in 2016 compared to £432.51m in 2015, reflecting the fact that a growing number of investors are attracted to the greater flexibility offered by alternative finance providers, including no minimum term and no exit fees.
The year got off to a strong start with £125.35m of bridging loans completed by Bridging Trends contributors in Q1, as buy-to-let landlords scrambled to secure short-term loans to finance the completion of property deals to avoid paying the 3% surcharge on second homes.
The market cooled off during Q2 to £91.11m, due to uncertainty in the run-up to the EU referendum, before the volume picked up again in Q3 rising to £140.49m, before dropping in the fourth quarter to £125.66m.
Volume during the first, second and fourth quarters of 2016 all exceeded levels compared to the same quarters last year, while the split between first and second legal charge loans remained fairly consistent throughout 2016, with first charge loans accounting for over 82% of the market in all four quarters.
A significant percentage of bridging loan activity was unregulated in 2016 at an average of 55.5% of all deals, although regulated business increased to 44.4% of all deals in 2016 compared to 36.5% in 2015, due to changes in regulation and the introduction of consumer buy-to-let.
Average loan-to-value (LTV) ratios were steady throughout the year at around 49%, while interest rates were under constant downward pressure throughout the year, averaging 0.89% in Q1 before rounding off 2016 at an average of 0.78% in Q4.
Joshua Elash, director of MTF, commented: “The final figures for 2016 show strong demand for bridging loans. Interest rates were again under consistent downward pressure throughout the year, as the bridging sector continued to be highly competitive.”
Mortgage delays were again the most popular reason for taking out a bridging loan last year, like in 2015.
Refurbishment was the second most popular reason for accessing a bridging loan in 2016, according to the data.
Kit Thompson, director of Brightstar Financial, commented: “The bridging Trends data for Q4 and across the whole of 2016 shows that the sector remains strong and is still growing, although growth in 2016 slowed when compared to the previous year’s growth.
“Against a backdrop of political and economic surprises with Brexit, Trump, stamp duty and tax relief changes, this is encouraging. No surprise that average rates have reduced, with increased competition in the sector, lenders have had to drop pricing to remain competitive and keep market share.
“New entrants continue to join the sector and lenders are awash with cash to lend. Non-regulated bridging transactions will always outstrip regulated and LTVs remained reassuringly comfortable for lenders, promoting sensible lending practise throughout our industry. January has started very strong and we expect another strong growth year for bridging.”