The UK’s bridging sector continued its healthy growth of 2017 with another strong quarter’s performance, yielding a new high of £4.7bn in the year to Q3, West One’s Bridging Index showed.
The latest edition of the quarterly report revealed that gross annualised lending increased from £4.3bn in June to exceed 2016’s pre-EU Referendum high of £4.4bn.
The bridging sector has recovered from the slump in the Q3 of 2016 that followed the referendum result.
Marie Grundy, sales director of West One, said: “2017 has proven to be a strong year for bridging finance, with a clear return to form after the post-Referendum turbulence this time last year.
“Seeing further robust new business performance in a quarter that includes the typically-quieter summer holiday period is very encouraging.
“The wider property and property finance markets have flattened against continued political uncertainty due to slow progress negotiating Brexit, and the prospect of interest base rate rises finally arriving.
“This new market high therefore reflects the underlying strength of bridging.
She added: “We believe there is still that slack in the market and expect that the bridging market will continue to this pattern of solid growth, despite some slowing in the housing market.
“With pockets of growth outside London and the South East, we anticipate seeing more of that growth regionally.”
Trends in the bridging market
The emergent trend in the first half of 2017 of smaller transaction sizes has continued through Q3.
Average loan sizes dipped under £600,000 compared to averages in excess of £900,000 at the same time last year.
There were less large transactions coming to market, reflecting the relatively depressed market for high-end properties with values over £1m, especially in London.
s performance figures from different sources pointed to more upbeat property markets in some regional hotspots such as the East Midlands or Greater Manchester, it seems property investors are focusing on deals in those regions, with typically smaller ticket sizes.
The regional picture
Between actual residential property and property finance data, and forward-looking expectations data, varying patterns emerge.
Nationwide and RICS found the wider South East of England has also become more subdued in price growth, with a markedly negative outlook.
But UK Finance’s regional mortgage data showed mortgage lending in the London region at 10% more than that of Q3 2016.
Data for house prices identify both East and West Midlands as hotspots for annual price growth, alongside the South West, where supply is highly constrained.
The wider South East region is still showing growth, albeit at a slowing rate.
Savills research identified Midlands locations like Birmingham City, Leicester-Nottingham and Northampton and pockets in Scotland like central Glasgow and the Galashiels area of Edinburgh commuter hinterland.
With central Manchester also shining a light for the North West of England, this indicates the opportunities that investors are starting to exploit, where they know the local market.
Taking forward-looking sentiment data into account, other regions came to the fore, suggesting further scope for agile investors to grasp emerging opportunities.
September’s RICS residential market survey of members pointed to likely buoyancy in the North West, Scotland and Wales, with positive Q3 sentiment across a range of measures from price expectations to new enquiries and listings. This suggested positive market conditions will continue in the East Midlands and South West.
Bridging interest rates
Interest rates in Q3 recovered slightly from Q2’s low of 0.96%, returning to just above 1% per month.
With Bank of England base rate changes widely expected for some months ahead of the 2nd November 0.25% announcement, it is likely that the market had already begun to factor this shift in.
The report predicted a further rise in bridging rates during Q4.
Danny Waters, chief executive of Enra Group, said: “The bridging sector has performed well during Q3, despite the backdrop of concern around the progress of Brexit negotiations, and economic indicators pointing to both a slower economy and to the interest rate rise that ultimately came in November.
“Whatever happens next, the industry must continue to adapt to conditions, and provide the diverse and flexible funding options that property professionals need, so they can take advantage of the changing, regional landscape that we are seeing develop.”