Annual gross bridging lending jumped by 30% in the twelve months to the
end of June, according to the latest West One Loans Bridging Index.
This means short-term lenders are now providing almost £2.8bn of finance on an annual basis, up from £2.1bn in June 2014 and the £2.7bn recorded in the 12 months to the end of April 2015.
The continued increase in the size of the UK short-term finance sector comes against a backdrop of bridging lending hitting global headlines, with ministers agreeing to give Greece a €7bn bridging loan from an EU wide fund so that it can meet its debt payment.
Duncan Kreeger, director of West One Loans, says: “The economic turmoil in Greece isn’t necessarily a situation you would want to readily draw parallels with, but what it has done is bring the concept of bridging loans to a wider, global audience.
“The rescue plan that is helping Greece isn’t bridging finance as we know it in the UK financial services sector, but there are several similarities that can help people further understand the versatility of bridging loans. While their primary use may still be property, be it buying at auction, development, refurbishment or land purchase, short-term finance is also increasingly useful for business purposes, such as liquidity issues and tax liabilities.
“The annual gross bridging lending figures show a market that continues to go from strength to strength, but the onus is still on all of us in the sector to raise awareness and continue educating brokers as to when it may be of use. The EU handout helps increase the profile of bridging and sow the seed that short-term finance needn’t be solely about property transactions.”
Trends in the Bridging Industry
Having reached record levels in April and May, loan volumes settled back slightly in June, but are still 12.6% up year-on-year.
Typical loan sizes grew in June, continuing the upwards trend seen throughout this year. The average loan now stands at £747,292, an increase of more than a third from the equivalent period last year.
Duncan Kreeger adds: “As the economy improves following the stability the election result provided, so too appetite for bridging loans continues to blossom. As has been the trend for some time, it is not just loan volumes that are heading north, but typical loan sizes continue to grow too.
“Borrowers are becoming more confident in short-term lenders’ ability to meet their needs and are feeling increasingly confident about embarking on larger projects. On the flip side, lenders are comfortable granting ever more sizeable loans and have full faith that these transactions will be repaid. The increase in big-ticket loans is the real driving force behind the sector’s annual growth and further evidence that borrowers see bridging loans as an effective short-term finance solution.”
Loan to value ratios
Having hovered around 50% in the previous period, bridging loan-to-value ratios fell to 48.5% for the two months ending in June. However, this still represents a slight increase on the 47.3% averaged in the year to June 2014.
Duncan Kreeger comments: “While loan sizes continue to drift upwards, this has not translated in to an increase in loan to value ratios. This is great news, as it means borrowers are maintaining a sizeable stake of their own capital invested in projects and are not saddling themselves with loans that they cannot afford. It also means that lenders are not even having to think about heading up the risk curve in order to attract new business.”
Bridging Interest Rates
Average bridging interest rates have increased over the past couple of months, with the typical rate for May and June standing at 1.20%, up from 1.10% in the preceding two-month period. The annual change is much flatter, with an average rate of 1.16% for the year to June 2015, down from 1.17% for the twelve months previous.
Bridging remains an attractive form of investment, with the spread between returns from backing bridging and 10-year government bonds currently at 1.06% on a monthly basis.
Duncan Kreeger concludes: “Like their high street mortgage counterparts, average bridging loans have remained historically low for some time now. But the current status quo can’t hold forever, and the Bank of England’s constant hints that a Base Rate rise is imminent will be playing on the minds of lenders and borrowers alike.
“That said, the future of the bridging lending sector looks bright and with £2.8bn of gross annual lending reported in the year to June, it is only a matter of time before the £3bn landmark is surpassed. If early indications of July’s figures are anything to go by, this milestone will be achieved sooner rather than later.”
(Source - West One Loans Bridging Index)