Bridging loan volume bounced backed during the third quarter of 2016 peaking at £140.49m, brushing off volatility that had plagued the financial markets from Brexit fears.
Third quarter volume among contributors was 54% higher than £91.11m in the second quarter of 2016, when activity was suppressed by uncertainty surrounding the referendum. The bridging loan market fought back in the third quarter reaching an annual high, with volume 12% higher than £125.3m in Q1 2016 and 6.6% higher than £131.7m during the third quarter of 2015.
The data is from the latest Bridging Trends, a quarterly publication conducted by bridging lender MTF, and specialist finance brokers: Brightstar Financial, Enness Private Clients, Positive Lending, and SPF, to monitor the general trends in the UK bridging finance market.
Contributor figures demonstrate the strong demand for bridging finance as investors and developers look for quick and accessible alternatives to traditional bank lending in order to take advantage of opportunities on offer.
Second legal charge lending increased to 19.4% of all loans during Q3 2016, from 16% in Q2 2016, despite several lenders temporarily stopping second charge lending following the Brexit decision.
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.
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%.
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 fell to a low of 0.85% in the third quarter, dropping 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.”
Kit Thompson, Brightstar’s director of bridging loans, said: “Bridging volumes are up, with contributor lending reaching £140.49m. This suggests that despite previous Brexit jitters, the market has performed well.
“Although loan-to-values have been restricted by some lenders post-Brexit, competition amongst lenders is forcing rates down. The latest figures reveal that, on average, it is taking three days longer to turn around a bridging loan compared to Q2 this year when the average completion time was 46 days. This is largely down to delays with valuations, down-valuations and legal delays, something which the sector (and wider industry as a whole) continues to struggle with. That said, new bridging enquiry levels remain high and there are plenty of funds out there to be deployed. It just takes longer to get these loans through than previously.
“This could indicate that lenders are becoming slightly more vigilant and mainstream lenders even more so as mortgage delays, which can often cause unnecessary costs for borrowers, are still the most common reason why borrowers seek short-term finance and, as a result, they are now leading 30% of bridging cases.”
Paul McGonigle, Managing Director of Positive Lending, added: “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. In Greater London the market has held its breath but now we are in a position where at present the potential reductions are not as drastic as first feared.
“This of course will still need careful monitoring for some time to come. We received many more HNW clients during this period than ever before and this reflected in our results in Q3. I would anticipate that Q4 will follow the same pattern.”