The latest Bridging Trends data from MT Finance has revealed a 46% increase in bridging loan volumes in Q3 2020, as COVID-19 lockdown restrictions eased.
Contributor lending transactions totalled £115.52m in the third quarter of 2020, and although lending figures were 36% below the pre-COVID levels of £180.94m, they had risen significantly from the £79.4m transacted in the previous quarter.
Regulated bridging lending continued to dominate the sector in Q3, at an average of 53% of all lending, compared to 47% of unregulated transactions.
The average weighted monthly interest rate in Q3 decreased to 0.78%, from 0.85% in Q2, falling back in line with rates offered before the COVID-19 outbreak (0.75%).
Average loan-to-value (LTV) levels in Q3 increased to 51.7%, from 48.8% in Q2.
This was attributed to borrowers turning to bridging finance as mainstream lenders continue to tighten their maximum LTV restrictions.
Demand for second charge lending dropped significantly, accounting for an average of 17.7% of total market volume in Q3 – down from 26.1% in Q2.
For the eighth consecutive quarter, the average term of a bridging loan remained at 12 months.
The average completion time of a bridging loan increased in Q3 to 52 days, from 50 days in the previous quarter.
For the seventh consecutive quarter, the most popular use of a bridging loan was to purchase investment property; 22% of all lending transacted by the report’s contributors in Q3 was for investment purchase purposes, dropping slightly from 25% during Q2.
Both regulated refinance and a traditional chain break were the second most popular uses for bridging finance, contributing to 17% of all lending in Q3.
Demand for regulated refinance increased by 8% and chain break by 7%.
Gareth Lewis, commercial director at MT Finance, said: “The stamp duty holiday and rising house prices has ensured that the market remains busy and it has been well publicised that the mortgage market is currently feeling the strain when it comes to delivering acceptable processing turnaround times, which can add to an already stressful experience.
“Luckily, bridging finance is a useful tool for brokers to help unlock a transaction for a client allowing them to meet deadlines.
“Given the stress on a chain, presented by the slow processing times, it is unsurprising to see more clients turning to regulated bridging finance to support their purchases.”
Chris Whitney, head of specialist lending at Enness, said: “Rates are down a bit, but I think we will see that drop much further in the next index, as price wars seem to dominate the market right now.
“LTVs are still surprisingly modest suggesting responsible lending still dictates in most of the market.
“However, the front-page headline has to be the fact that lending volumes were up at over 45% higher than the previous quarter.
“From July onwards we saw some lenders who had been in a pandemic hibernation return so there was more choice of funding and others had started to go back to pre-COVID-19 LTVs, making certain transactions viable again.
“In the last quarter lenders and key stake holders such as valuers and solicitors had also been able to refine systems and processes that had initially caused problems when lockdown hit in terms of handling volume.
“However, I don’t think the increase was purely a supply-led cause. We have seen huge demand from borrowers as well.
“Some perhaps starting previously postponed projects and others looking to put a war chest together in case a pandemic led trauma in the overall economy created opportunities for them.
“It just goes to show how robust the industry is and how important it is to the economy.
“I think demand will continue to increase as we still see many high street lenders closed to new businesses or being very restrictive as to what sectors they will lend into and on what terms.”
Craig Hardiman-Scott, senior associate at Sirius Property Finance, said: “Customer demand is extremely high, so it comes as no surprise that the short-term loan market continues to be very buoyant from developer exits through to business capital injections to name but a few.
“Those with competitive rates, products, and service that have been able to adapt their offerings throughout the pandemic are well placed to continue seeing the benefits.”