This compares with an 18% year-on-year expansion seen just two months ago, for the year ending 1st May – or just before new rules, introduced on 26th April, started to significantly affect the mainstream mortgage market.
Since then bridging loans have rapidly supplied £470m in gross lending, within the space of the last two months ending 1st July.
Industry gross bridging lending now stands at £2.17bn per year, for the 12 months ending July – a new all-time record high. Moreover, if the latest rate of growth continues, the UK short-term secured lending industry could be worth £2.8bn per annum by the end of 2014.
Duncan Kreeger, director of West One Loans, said: “Bridging is firing on all cylinders. And this is down to a number of positive factors all coming into alignment over the past few months.
“Thanks to the constructive approach of the financial regulators, the new MMR affordability assessments don’t apply to most bridging loans. Due to the nature of short-term secured finance, the loan term is almost always less than a year and interest is often rolled up.
“By contrast, post-MMR delays in the mainstream market have crept into many areas of buy-to-let and commercial lending. So many property investors are now more actively choosing to bypass the usual lenders from the start – as the high street is forced to focus its attention on simpler cases.
“This is combining with a growing awareness about what bridging finance can get done – thanks in no small part to the growing expertise of specialist brokers. As the variety of borrowers grows in line with the sheer numbers of inquiries, we don’t expect this acceleration to reverse any time soon.”
Trends
The most recent spurt of growth in the bridging market is being driven by progress in both the size and number of loans being written.
The average loan size now averages £475,500 over the twelve months to 1st July, a 14.8% improvement on the previous twelve months, when the average loan was for £414,000.
Greater loan volumes have been even more significant, with a 28.2% improvement over the last 12 months.
This is driven in particular by a 13.5% increase in loan volumes on a bimonthly basis – the two months from 1st May to 1st July, compared to the two months before the Mortgage Market Review.
Kreeger added: “Property prices are rising, creating both an opportunity for investors – and a challenge for those in need of affordable homes or workplaces.
“Bridging lenders are responding with the finance that can help ease the squeeze on supply, in loan sizes that are more than keeping up with the property market – and in volumes that will make a real difference.
“As wider economic conditions become more hospitable, the bridging market has already proved it can perform well in good climates as well as bad.”
LTV ratios
Average loan to value ratios have increased to a twelve month average of 47.3%, up considerably from the low of 46.5% witnessed over the previous twelve months, ending 1st July 2013.
Kreeger said: “It’s encouraging for the industry’s future growth prospects that even as volumes and loan sizes are both growing rapidly, loan-to-value ratios remain restrained.
“Lenders, with help from expert brokers, are lending only to credit-worthy borrowers. And even after the current acceleration, amongst all the industry players there is a sense that lenders have even more capacity.
“But maintaining a note of caution is sensible, and bridging lenders and borrowers alike will be able to keep making extraordinary progress without resorting to higher LTVs.”
Bridging Interest Rates
Bridging interest rates have averaged 1.17%, over the year to 1st July 2014. This is down by 10 basis points from the previous 12 month period, when this stood at 1.27%.
Most recently, on a bi-monthly basis rates have fallen to just 1.14% over the two months ending 1st July.
This compares to 1.19% over the two months to 1st May, and is only three basis points above the record low of 1.11% set in the final two months of 2013.
Despite these recent falls in market rates, bridging loans also remain an attractive proposition to investors, with a current monthly spread of 0.93% from 10-year Government bonds, which currently offer a yield of just 0.24% per month.
Kreeger said: “Bridging loans are not just helping in greater numbers of cases – they are doing so more cheaply and efficiently.
“Meanwhile, when you consider the fact that bridging LTVs remain far more modest than those extended by most large banks, it’s plain to see why the soundness of the bridging industry is still of increasing interest to private investors.”
