September 1, 2015
Our latest West One Loans Bridging Index showed that short-term finance continued its upwards trajectory in recent months and has almost broken the £3bn mark after 30% year-on-year growth in the 12 months to the end of June.
Our own transaction figures also recently revealed that that we set a new monthly lending record in July by completing more than £45m of loans. These figures – together with those from the index – suggest that the size of the industry is on track to continue its growth over the coming months.
The primary use of bridging lending continues to be in the property industry, be it buying at auction, development, refurbishment or land purchase, however it is increasingly proving useful for business purposes such as tax liabilities or short-term liquidity issues.
Indeed the increased confidence and awareness among borrowers in short-term finance’s ability to meet their needs has translated into an increase in the average loan size and the volume of bridging loans.
Borrowers are increasingly comfortable using bridging loans for larger projects, while lenders are comfortable about granting sizeable loans because they have full faith that they will be paid back.
The West One Loans Bridging Index shows that loan-to-value ratios have consistently stayed around 50% for the past few months, which is reassuring as it means borrowers are maintaining a sizeable stake of their own capital invested in projects and are not overburdening themselves by taking out loans that they cannot afford. It also means that lenders are not even having to consider taking unnecessary risks by heading up the LTV curve in order to attract new business.
The latest instalment of the index showed that typical loan sizes surged past the £700,000 mark in May and June, an increase of more than a third from the equivalent period last year, while the volume of loans was up a massive 12.6% year-on-year.
It is the increase in big-ticket loans that is the real driving force behind the bridging lending sector’s impressive growth and is further evidence that borrowers see bridging loans as a viable form of finance.
The growing popularity of short-term loans can also be explained by the fact that borrowers have more confidence in the future health of the UK economy, now that the election has concluded and there was a stable outcome with a majority Conservative government in control.
Certainly the growth of the bridging lending industry does not look like it is going to halt any time soon. Indeed the future of the sector looks bright, with our own July figures suggesting that it is inevitable that bridging lending will surpass the £3bn landmark sooner rather than later as borrowers’ confidence in the sector continues to improve.
The vast majority of intermediaries in the sector expect volumes to increase in the final months of 2015, with nearly all members of the ASTL supporting this viewpoint. Bridging will also be immune to the regulatory changes affecting other areas of specialist finance such as the second charge mortgage sector preparing itself for coming under the Mortgage Credit Directive. This may well act as a precursor for increased legislation in the bridging industry too, so short-term finance providers will undoubtedly be watching events unfold with keen interest.
Either way, the onus is still on all bridging lenders – and we’re fully aware of the part we have to play – to raise awareness and continue educating brokers as to when bridging lending will be of use to their clients. The sector has come on leaps and bounds in the last few years and there’s no time for resting on laurels now.