Bridging finance demand up

Robyn Hall

October 14, 2015

Contributor lending activity climbed to £131.7m during the third quarter of 2015, from £99.1m during the second quarter as demand for short term lending grew.

Joshua Elash, director at bridging loan lender, MTF, said: “The recent data is interesting as we are beginning to see a degree of consistency in the key market parameters we are seeking to benchmark.”

And he added: “The percentage of first charge business versus second charge, the average monthly interest rates, average terms, and the LTV data shown in the first three quarterly reports are all sufficiently consistent to begin to give us reliable insight into the bridging finance market.

“We are however, surprised to see the average number of days being taken to complete a bridging loan lengthening out further from what already appeared to be a rather extended period of 39 days as per the Q2 results. This may be a seasonal anomaly and we are interested to see how this figure will shift as we move into the final quarter of the year.”

Demand for bridging finance was strong as borrowers continued to tap short term liquidity, especially to plug the funding gap left by mainstream lenders implementing tougher affordability restrictions.

For the second consecutive quarter, mortgage delays were the most popular reason for accessing a bridging loan, rising to 37% of all lending, from 33% during Q2 2015. Refurbishment was the second most popular reason for getting a bridging loan, contributing to 21% of all lending.

First charge lending remained solid, indicating a significant investment in residential properties-to-let, while second legal charge lending for the quarter rose to 20%, from 14.9% during Q2 2015.

Average LTV climbed to 50.9% in Q3, impacted by a boost in unregulated business, which rose to 68% in Q3 2015 from 53.3% in Q2 2015.

The average completion time on a bridging loan application jumped to 46 days during the third quarter from 39 during the second quarter, as service and resource levels were impacted by annual leave.

The average term of a bridging loan was 10 months in the third quarter, down from 11 months in both the first and second quarters.

Other key data points from Bridging Trends in Q3 of 2015 included total contributor lending reaching £131.72m – an increase of 32.9%; average term falling by a month to 10 months; average monthly interest rate increased by 0.01% and average LTV increased in the third quarter to 50.9%. Meanwhile some 32% of bridging loans were regulated in Q3, down from 46.7% in Q2.

Chris Fairfax, managing director of Positive Lending and a contributor to Bridging Trends, said: “The bridging market continues to gather pace as a consequence of reduced pricing. These figures clearly demonstrate that bridging finance is being used for a number of purposes but mortgage delays remain most popular, our data would certainly agree with this. I was slightly surprised to see average completions taking 46 days, otherwise the statistics are broadly representative of our bridging business.”

Chris Whitney, head of specialist lending at Enness Private Clients, another contributor, added: “Total lending up by over a third has got to be the big news. Enness as a small part of that not only saw an increase in volumes but also an increase in loan sizes with the biggest being £12m as a single loan.

“This just goes to show that bridging isn’t the small ticket business it used to be and now being used by sophisticated real estate professionals and businesses alike.

“The sentiment in the market overall feels as though there is a real appetite to gear as high as possible. However the average LTV in the bridging trends remains surprisingly low. This would seem to fly in the face of critics who often claim bridging is irresponsible lending.

“Mortgage delays are certainly an issue as the figures show. I also feel that this isn’t just an issue caused by the summer holidays.

“The regulators tightening their grip has meant additional underwriting and more onerous processes for clients and their brokers to negotiate making the whole process much slower.

“Refurbishment loans also still a big part of the business mix as the short term finance market continues to service the space left by some of the main stream development funders.”

Kit Thompson, director of bridging at Brightstar, and another Bridging Trends contributor, said: “The stand-out figures for me are the quarterly increases in lending volume, which shows that the bridging market is indeed growing and bridging has far from plateaued, as some sceptics predicted it might.

“Whilst the actual size of the bridging market is unknown with estimate from £2bn to £5bn, one thing we can be sure of is it continues to increase and the sector is in rude health.

“Apart from the increase in lending, the Q3 figures are comparative to those reported in Q1 and I would predict that this will remain typical over the whole year.

“The slight drop in regulated transactions could be attributed to forthcoming MCD regulation, but I feel it is probably too early for this to have any significant affect. If MCD is to have any bearing, then this will show when comparing Q1 and Q2 2016.

“The biggest and most disappointing variance has been in the average completion time, which has increased quarter on quarter with the average now at 45 days.

“This is not a surprise as bridging cases still tend to experience two bottle-necks, which have plagued the industry for some time, namely; valuation delays and legal delays, with the latter being the largest contributor to delayed completions.

“Lenders need to increase the number of surveyors on their panel to allow for service delays and it has been suggested before, but an expert panel of solicitors who are well versed in dealing with bridging should be made available to borrowers as a choice, rather than their own perhaps inexperienced conveyancer who has never dealt with bridging before.”

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