Weak mortgage lending will increase

Robyn Hall

January 2, 2013

In December the Council of Mortgage Lenders predicted that banks and building societies would lend an extra £12 billion in 2013, 8.3% more than they did in 2012.

But in a recent survey of 400 mortgage brokers carried out by bridging lender West One Loans, mortgage intermediaries forecast the bridging industry will grow by 36% over the next year – four times faster than the mainstream mortgage market.

The projection, recorded in the latest West One Broker Sentiment Survey, follows recorded annual growth of 65% in the year to Q3 2012.

Duncan Kreeger, chairman of West One Loans, said: “The mainstream market is going nowhere fast. Even the 8% forecast from the CML seems hugely optimistic. The banks are being hobbled by funding constraints – capital adequacy rules mean that they’re in no position to lend a great deal more money. At the same time, the market is desperate for extra funds – small businesses in particular are crying out for loans – the most carefully considered investment plans are being ignored by banks on the high street. That’s driving potential borrowers of various kinds to alternative sources of finance like bridging. Fortunately, the bridging market has proved very dynamic over the last few years and has been able to respond to that demand.

“By the end of 2013, the bridging industry will be lending almost 400% more finance than it was in 2010. In contrast, the high street will be lending just 11% more than it was in 2010.”

The growth of the alternative funding market is eclipsing the government’s Funding for Lending Scheme.

British banks have taken out £4.4bn from the Bank of England through the Funding for Lending Scheme, but that has helped them increase lending by only £496m. This increase in mortgage lending due to FLS equates to 0.3% of annual gross mortgage lending.

By contrast, 36% growth of the bridging industry will mean extra lending of £511m by Q3 2013.

Kreeger said: “The Bank of England wants to improve funding, and that’s very commendable. It makes sense when the Bank’s very own Director of Financial Stability says the debt crisis has done the same economic damage as a world war.

“But FLS has unquestionably been a massive disappointment. The approach of the unfettered private sector has proved far more powerful.”

Gross lending via the bridging market expanded 65% in the year to Q3 2012. This growth equates to £670m – already more extra lending than any government intervention has provided.

Kreeger added: “When 2012 comes to a close, bridging will have provided at least £1.5 billion in funding. Continuing that growth will do more to lift the UK out of recession than any scheme to give high street banks special treatment.”

Bridging interest rates to fall

West One Loans also surveyed brokers about their predictions for interest rates.

A record proportion of brokers expect lower interest rates on bridging loans.

Some 45% of brokers now expect average rates to be lower in a year’s time – outnumbering those who predict higher rates by almost three times.

This leaves the proportion of intermediaries expecting lower rates more than double the level it was in February – when this proportion was 19.6% of all brokers.

Kreeger said: “The market will only become more competitive over the next year – as the bridging industry becomes more professional. As well as being good news for borrowers, more competitive rates are evidence of a maturing market.

“Bridging lenders who run a peer-to-peer model can be even more competitive. Cutting out swathes of middle-men allows peer-to-peer lenders to give all sides a better deal.”

Bridging LTVs to increase

Bridging loans for borrowers with lower deposits are expected to become more widely available – as an increasing proportion of intermediaries expect loan to value ratios to increase.

The proportion of bridging brokers expecting higher LTVs in twelve months time now stands at 35%, compared to 14% who expect lower LTVs in 2013.

Kreeger added: “The capacity for higher LTVs means bridging can make the difference for a greater scope of projects.

“Borrowers of all kinds are increasingly attracted to the speed and availability of alternative funding. Where a high street bank will delay and complicate for months, a bridging lender can have the deal signed – and the project off the ground – in weeks.”

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