The Index shows that total gross bridging lending for all purposes reached £1.79 billion in year to August 2013, totalling £364 million July and August alone.
Duncan Kreeger, director at West One Loans, commented: “As the economy builds some much-needed muscle, small businesses, landlords and developers are feeling a real imperative to get things done.
“This industry isn’t a substitute for mainstream mortgage lending, it’s something entirely different. Short-term finance is designed to get a project to completion – such as a vital business investment, or a valuable property in need of renovation.
“Alongside mainstream finance, that’s opening up opportunities that wouldn’t be possible otherwise. We’re seeing record demand from all sorts of borrowers, and expect that to continue for the rest of this year and into the foreseeable future.”
Over July and August, bridging loans for buy-to-let purposes totalled £194 million in gross advances. This represents a record high, at an estimated 36% of total lending.
Kreeger said: “Landlords don’t just need mortgages. To expand portfolios landlords are increasingly converting properties from other uses or from a dilapidated state.
“That’s vital for a growing rental market and it’s a huge economic opportunity. But this type of lending is not supported by most mortgage lenders. There’s a serious gap in the financial system.
“The trouble is that standard mortgages were never really set up for that sort of loan and the financial crisis has made lending criteria even stricter. For example, it’s practically impossible to get a high street mortgage on an ex-office – or a flat with no bathroom.
“Working alongside mainstream finance, short-term, secured loans increasingly bridge that gap. There are more and more landlords who want to grow their portfolios in more intelligent ways. Most vitally, this can actually expand the stock of available properties.”
Interest rates in July and August were marginally lower, averaging 1.18%, after 1.19% in the previous two months.
An annual comparison also shows a trend towards more competitive rates – down to 1.25% in the twelve months to August 2012, compared to 1.40% in the preceding year.
Mark Abrahams, director at West One Loans, explained: “Lower rates are making these loans suitable for a wider variety of projects. That’s great news for everyone involved.
“Competition is the main driver for lower rates within the industry, and that reflects the growing variety of lenders and funding channels. Overall that’s good news for borrowers – but it’s also good news for private investors who can now choose from a greater variety of bridging investments than ever before.”