Growth in alternative finance outstrips mainstream

Robyn Hall

February 11, 2013

The Council of Mortgage Lenders estimated a 1.4% annual expansion in gross mortgage lending between 2011 and 2012 while annual gross bridging lending grew 72% over the same period.

Duncan Kreeger, chairman of West One Loans, said: “The high street is growing at a fiftieth the rate of the bridging industry because high street finance has developed a chasm between investors and borrowers. Half a decade of households paying down debt has done nothing to stimulate lending to new borrowers through our broken banking system.”

In 2012 the bridging industry recorded the expansion of gross lending by £653m in a year, from £912 million in 2011.

On a quarterly basis, mainstream gross mortgage lending grew by 0.5% whereas gross bridging lending has expanded by 10% since quarter 3 2012, when this stood at £399m. Gross bridging in the final quarter was £439m, 49% more than the equivalent period in 2011.

Kreeger added: “In the autumn I predicted bridging would break the £1.5bn mark by the start of 2013. That looks too conservative now.

“Bridging will smash the £2bn mark by the end of the year at an absolute minimum.”

Meanwhile there was a 2.1% increase in the size of the average UK mortgage between 2011 and 2012 compared to a 36% increase in the size of the average bridging loan.

The number of loans granted also rose in 2012 by 23% despite a slight drop-off at the end of the year when loan volumes in quarter 4 fell marginally by 3%.

Kreeger said: “As it matures the bridging industry is taking on bigger and bigger projects. This is because high street banks are keeping their criteria so tight they’re effectively ruling out any ventures that could be classed as development. That would have left thousands of prime investment opportunities high and dry if it wasn’t for alternative finance.”

Loan to value ratios across the bridging industry have continued to fall.

The average first-charge LTV in quarter four 2012 was 44.7%, down from an average of 48.6% in quarter 3. LTVs were also down in a year-on-year comparison, one percentage point lower than the average LTV in quarter 3 2011, which stood at 45.7%.

Conversely the average rate on a bridging loan saw a slight uptick at the end of 2012 increasing to 1.35% in quarter four, from 1.31% in the previous quarter.

But on an annual basis rates have fallen from 1.35% in the final quarter of 2012 compared to 1.42% in the final quarter of 2011.

Mark Abrahams, chief executive of West One Loans, said: “Bridging keeps getting more competitive and that’s leading to marginally lower rates. Investors can be comfortable that excellent returns go hand in hand with lower risk, lower LTVs and a more mature industry.

“An inflation-beating return is now so rare for mainstream investors that many are starting to think beyond the tired twosome of equities and bonds.”

Returns for investors in the bridging industry remain around eight times those available from traditional ten year government bonds which West One said is typical of the comparison with other asset classes.

Sign up to our daily email