Over the last few months property investors have been opting for longer-term bridging loans because of Brexit uncertainty, brokers and lenders alike have observed.
James Bloom, managing director of short-term lending at Masthaven Bank, said borrowers have been opting for longer-term bridging deals for more certainty by looking for 18-month non-regulated loans for both bridging and development.
He said: “Unfortunately because of the market exits take longer and if you exit the sale it’ll take longer to sell the property, so it’s inevitable the average length of the loan will increase in the market and you need products to match that. It’s a natural trend.”
James Hedges, a broker at Voltaire Financial, agreed and said that clients have been opting to take a longer-term bridge of around 18 to 24 months rather than the typical six to 12 months to give them a little bit more flexibility.
He added: “Clients typically are after a 12-month bridge because at the end of the loan they know they’ll be selling but with Brexit, they’ve been unsure whether it will be the right time to sell in 12 months’ time and don’t know where they’ll be, so they’re opting for longer-term bridges.”
Hedges pointed to the example of a deal on an office building where the client wanted a bridge to sell in six months’ time. However he opted for a longer-term bridge for more certainty because he was worried about the market collapsing, while he was also anxious his tenants could leave the office building and he’d struggle to replace them.
Hedges said: “But I think he’ll be fine because its well-located and everyone’s desperate for office space.
“There’s been a few deals where you typically get the shortest deal possible for the client because they typically just want some cash and then to sell the property, but clients are now looking for more certainty.”
Payam Azadi, director of brokerage Niche Advice, has seen the same trend but doesn’t think borrowers should be going for long-term bridging loans ideally.
He said that if a client wants a 70% loan-to-value bridge a lot of the costs gets added to the loan and if they’re servicing it and choose a 24-month term after the interest is paid they actually end up with a 50% LTV deal.
Azadi added: “We’re seeing clients look for longer terms but this could impact on how they service the loan.
“A longer-term only really works if a client is prepared to service a loan. Most clients I’ve come across don’t want to service it. And the exit strategy will impact on what people want too.
“When a borrower takes out a bridge and after six months can’t sell it, they shouldn’t look at keeping it for another six months. They should look to flip it into a buy-to-let or if they want to keep it, a longer-term bridge might be useful.
“But as a set rule bridging is supposed to be a short-term solution and there’s innovative ways you can look to meet the client’s needs without necessarily sitting on an 18-month bridge.”
Rebridging will define 2019, as mainstream bridging lenders are likely to get nervous about extending deals, Chris Oatway, founder and director of LDNfinance, has predicted.
He said that mainstream lenders may want to do less rebridging this year as no one wants to keep rebridging a deal multiple times, leaving room for others to step in. He also pointed to bridge to sell as another growth area.
Oatway (pictured) said: “There’s been a lot of rebridging over the last couple of years, increasing month-on-month. We still see there being a massive market for rebridging. The year of the rebridge is still ahead.
“Rebridging and bridge to sell will be strong this year due to the slow market. Every deal is taking longer to go through so I can see both of these areas growing.
“The mainstream lenders won’t stop rebridging but I think they’ll get more nervous in that area, spending more time assessing the deal, making a decision and not saying yes to everything like they may have been doing before.
“However, that section of the market will still be serviced by other lenders. There’s so many options you can have for bridging finance that no matter what the requirement is, whether rebridging or bridge to let, it will be serviced because there’s enough people out there to cater for it.”
Oatway said you just have to know who to speak to make sure you can get these rebridging deals done and he’s seen a lot of distressed sales with auction deals where people want to get out of it quickly, pre and post Brexit.
Oatway added: “Auction purchases will also remain strong but are not likely to significantly increase, in proportion to the bridging market, unless there is a hard Brexit and a big knock-on effect.”
The ongoing uncertainty around the UK’s scheduled departure from the EU has epitomised an environment in which we have had to learn to expect the unexpected, which is not an ideal situation for lenders or advisers.
As we approached the end of last year, in the short-term lending market we were greeted with the news that Amicus Finance had entered administration, which, combined with the environment of uncertainty, has led to questions in some quarters about the future health of the sector.
With this in mind, it is useful to take a step back from the noise, to review the role the market has played in the past and to take an objective view of current challenges.
Evolution of sector
When the 2008 credit crisis hit the UK property market it was important for alternative finance to fill the gap left by the mainstream mortgage sector, and short-term lending became more significant for customers as it provided the flexibility they needed to achieve their objectives.
The Association of Short Term Lenders was set up in March 2008, initially with 19 members, with the dual objectives of protecting the reputation of the sector and providing a voice for lenders involved in bridging and secured lending for terms of between six months and two years.
The role of the ASTL has been to promote responsible lending, transparency and professionalism in the bridging finance sector, with members subscribing to our code of conduct, membership rules and value charter.
And we have achieved a lot over the past decade, growing our membership to more than 60 and developing an increasing influence with various bodies including the Financial Conduct Authority, the National Association of Commercial Finance Brokers, Association of Bridging Finance Professionals and HM Treasury.
The lending landscape has also changed significantly over this decade. More institutions have spotted the opportunity and new lenders have entered the market, increasing the options available for borrowers.
Competition is important for any market. Not only does it provide customer choice, but a larger number of players can raise awareness of the product and stimulate demand.
We have certainly seen new entrants into the bridging sector helping to spread the message about short-term lending as a flexible funding solution and there has been increased understanding about uses for bridging among intermediaries and consumers.
Those consumers have also benefited from another consequence of increased competition, with greater availability and lower pricing. But these benefits for consumers also provide a challenge to lenders.
A report by EY into the bridging market found that three key trends have emerged as a result of increased competition, with lenders experiencing margin compression, stretching to higher loan-to-value ratios and introducing more flexible product terms and features.
It is important for any lender to manage these risk factors, but amidst an environment of high competition and some significant economic challenges, it is important for bridging lenders to be cognisant about balancing their appetite for market share with taking on excessive risk. Failure to appropriately manage this risk can lead to casualties, as we have seen.
There are undoubted economic challenges ahead. The OECD’s stable forecast for the UK is based on the assumption that there is a smooth exit from the EU – and this is looking increasingly unlikely.
The OECD says failure to come to a withdrawal agreement with the EU is by far the greatest risk in the short term, suggesting that a no-deal scenario could subtract more than 2 per cent from real GDP over two years, and elsewhere, media speculation makes the OECD outlook appear decidedly positive, with the papers full of gloomy predictions.
Brexit is not the only risk ahead. There are many indications the global economy has passed its peak in the cycle and there have been signs of volatility in markets across the world.
It is also widely expected that there will be a property price crash in Australia, with recent data from CoreLogic confirming house prices have fallen the most in a single quarter since 2008.
History tells us the world can be a small place when it comes to economic contagion, and if banks suffer losses in Australia, they may become more risk averse in other regions.
In addition, we do not know the impact the UK’s growing mountain of debt will have during a downturn.
The country’s total debt is projected to reach £6.7tn by 2023, with households accounting for £2.6tn of that, a larger share than both the government and non-financial companies, according to analysis byPWC.
Cautious optimism
There are certainly challenges, but there remains opportunity among the danger, and perhaps reason for cautious optimism about the sector.
The unemployment rate is historically low and real average earnings have risen. These are strong economic foundations and, if the Brexit situation is resolved without inflicting significant damage to the economy, there is potential for a bounce-back.
The OECD says Brexit-related uncertainties have held back economic growth since the referendum in 2016 and so any positive outcome from negotiations could lead to stronger than anticipated results.
The key for short-term lenders is to proceed with care. Companies need to invest in people to ensure the threat of skills shortage is mitigated and to have confidence in the decisions employees make.
They also need to invest in technology to help deliver this peace of mind, so that skilled people have reliable data to work with, and information-gathering needs to be improved.
This is why it is so important that, as an industry, we are able to put aside commercial differences and come together to share expertise and best practice.
Increased competition among bridging lenders can grow our market and increase opportunity for everyone, but it also comes with risks, particularly in such an uncertain environment.
By working together we can help to identify those risks and agree a shared approach to mitigate them.
Developing this approach of mutually beneficial co-operation will be a key focus for the ASTL in 2019.
With a cautious approach and the ability to share and adapt, we believe the bridging sector will emerge from the uncertainty with greater resilience and more opportunity.
By Benson Hersch, chief executive of the Association of Short Term Lenders
There’s been a surge of short-term lenders entering the market over the last 12 months, up by 50% on 2017, Brightone Law has found.
Short-term lending transactions are also up 15% year-on-year.
Recent figures from the Association of Short-Term Lenders (ASTL) also show that bridging lending amongst its members rose by 15% in 2018. The value of applications have also increased, up by 13.4% to nearly £21.5bn and total loan books increased by 3.6%.
Jonathan Newman, (pictured) senior partner at Brightstone Law, said: “Despite Brexit and slowing house prices, the industry has remained resilient.
“The current economic and property market conditions do not seem to have adversely affected transactional volumes, or the appetites of lenders to fund over the market as a whole.
“Whilst some lenders have applied greater caution in underwriting, others have seized the opportunity to gain a foothold.
“Short-term commercial lending is regarded as the last area of unregulated lending, and therefore relatively quick and easy to set up to lend and open to all.
“With the current climate amongst institutional lenders remaining cool and processes viewed as tiresome, labour intensive and unsatisfactory, significant volumes of finance are being redirected into the short-term lending space.”
Newman added: “We are also seeing a loosening of lending criteria and increased flexibility from new lenders entering the market. These new entrants are driven, passionate and have a willingness to adapt and innovate. They will disrupt the market, just like the first wave of challengers did 10 years ago.
“However, what is deeply concerning is that some of these new lenders lack experience and so have the potential of being exposed to poorly non-performing customers, or unsuitable security.
“Many of these new players are unable to identify future problems and may not have the personal know-how, gained from experience, to deal with problem issues in an effective and sensible way.
“However, they can reduce some of those risks by tapping into the experience of professional partners for support.”
Newman said that selection of key professional partners is all-important to securing a successful start.
He said: “Cost is a factor in that selection process but should not be the sole one.Hence selection of key partners is vital.
“Valuers with longstanding experience of market volatility, but with particular experience of the chosen asset class; intermediaries that introduce, but who are active in the wider finance market, and who understand the borrower and maintain the relationship to contribute and participate in the exit too; solicitors who have the technical competence and process to transact the property side competently and securely, but with transactional experience, knowing what can and sometimes does go wrong further down the timeline, and how to deal with that; solicitors that do not just identify issues but are capable of offering solutions.
“Brightstone Law has a well-established reputation for short term finance transactions and recovery I take great pride from the longevity of our lender client relationships.
“So many of our clients were once those disruptor new boys on the block and now, are established, key players, leading brands and the benchmark for new entrants. To have played a role in their growth and success is truly satisfying from our perspective.”
Based on observations and conversations over the past year, there appears to have been an increase in the search for international funds coming through London brokers.
A growing number of London brokers it seems, are being asked to access money by borrowers keen to do one of three things: either purchase an international property, carry out work on a property based overseas or, increasingly, release money from a property based in continental Europe in order to spend on property or business in the UK. In each of these cases there is another property that is being leveraged on a short-term basis in order to satisfy a development or business need.
There could be a number of reasons for this uplift, but it increasingly seems to be the case that if you have an international property and can’t find funds abroad then you look to London as an international finance centre. For flexible, short-term funding, London is still the place to come, even despite Brexit.
What is interesting is that the people turning to London brokers for help are not even all UK nationals, they are a number of different nationalities all of whom have property on the continent that they need to leverage on a short-term basis.
It makes sense that international brokers like Enness and Knight Frank will be approached for this business as they have international connections so may be contacted in multiple jurisdictions, but the demand seems to be wider than this with a much wider range of brokers being approached. It is not exclusive to London brokers either, but the demand does seem to be predominantly in this region.
The key reason seems to be that short-term finance is not generally available across the continent, but as awareness grows of bridging finance and how useful it is, this is increasing demand. And the key place to realise this demand is in London and the UK.
There has also been an uplift in UK business people releasing capital from properties they may own abroad in order to capitalise on business opportunities here. Many UK business people, especially developers, will have unencumbered property abroad. They are now seeing the opportunity to leverage it for their business or for property development. It is this segment of the market that is showing the greatest potential. This fast turnaround of short-term money can really make a difference to businesses needing to invest, or even needing working capital.
It is an exciting market and what that looks set to increase throughout the year as awareness of the possibilities increase, not only in the UK but across Europe.
Members of the Association of Short-Term Lenders (ASTL) wrote more than £4bn of bridging loans in 2018, representing an increase of 14.8% on 2017.
Figures compiled by the ASTL’s auditors from its bridging lender members for the fourth quarter of last year show an increase in the value of loans completed, outstanding loan books and applications in 2018 from the year before.
Benson Hersch, chief executive of the ASTL, said: “Our latest data survey shows continued growth in the bridging sector, with the value of loans completed in 2018 up by nearly 15% on 2017, the value of applications growing by more than 13% and the value of outstanding loan books also higher than the previous year.
“These results show that, in an uncertain economic environment, our members are continuing to provide useful, flexible finance for a whole range of purposes, and they are doing so whilst maintaining a commitment to high standards of underwriting.
“This is very encouraging and indicates a sustainable sector that is built on robust foundations.”
During this period, the value of applications increased by 13.4% to nearly £21.5bn and total loan books increased by 3.6%.
The value of loans completed for the quarter ending 31 December 2018 increased by 13.5% on the previous quarter and the value of applications increased by 0.3%, although the value of outstanding loan books decreased by 7.1% during this period.
A plethora of TV property programmes have over the years inspired a generation of property investors and restorers in the UK, which has given a boost to property auction houses and helped fuel an increase in bridging loan activity.
In addition, changes in buy-to-let have caused landlords to chase opportunities for better yields. Some investors have made good returns by purchasing properties at low prices and renovating them to increase the value and potentially derive attractive rental yields.
The Association of Short Term Lenders (ASTL) recently reported that bridging lending recorded a 21% increase in the 12 months to September 30th, 2018.
Buying rental property at auction
For those looking to invest in rental property at auction, there are time pressures around financing.
You must pay 10% of the property auction price on the day and settle the full amount within 28 days of the auction taking place. Some houses may offer 56 days, depending on property and auction house rules.
Securing a mortgage in that timeframe is generally impossible. Regardless of timescales, if you are purchasing a property that is uninhabitable (no functioning kitchen /bathroom), a mortgage lender generally would not extend a mortgage. This is where a bridging loan comes in.
A bridging loan is a form of short-term lending and can be arranged in much less time than a buy to let mortgage. Turnaround times are typically 28 days, although one of the lenders we work with has the ability to pay out funds from as little as two weeks from application.
This means you can go to auction with a timely means of securing the finance you need to purchase your property.
Bridging loan uses
Bridging loans are not just useful for auctions.
They can help to finance a number of scenarios such as renovation work on a property, with the aim of either selling the building for capital growth once the work has been carried out, or letting it out (when it is in a suitable condition) for rental income.
A bridging loan can also be used to purchase land for future development, or (as mentioned above) to purchase uninhabitable property.
Borrowers can usually secure bridging finance on up to 75% loan to value and, at the time of writing rates start from 0.44% (this is subject to change).
Exit strategy
When using a bridging loan, it is vital you have a clear exit strategy – i.e. a definitive plan on how you will pay it off.
Bridging loan rates are more expensive than buy to let mortgage rates and they are charged monthly not annually. Not having a robust method of repaying the loan risks unnecessary and expensive repayments at best, which could lead to financial hardship.
No broker should ever arrange a bridging loan for you without planning the exit, and if there is no viable way to pay off the bridging loan, they should not recommend a bridging loan to you.
An exit strategy could be as simple as the intention to sell the property to pay off the loan.
It could also be that the property, once renovated, is intended to be used as a rental property. In this case, the borrower may opt to pay off the bridging loan with a buy-to-let mortgage. The property would have to be in a suitable condition to meet lender criteria and have enough equity to satisfy the lenders’ loan to value limits.
In cases where a business has taken out a bridging loan, future operating cash flows may be used to pay off the loan. However, a projection of future cash flow is not a secure exit strategy.
How commercial bridging loans can contribute to solving the housing crisis
Land availability and securing planning permission can be tricky propositions.
Yet the declining UK high street could be a viable means of helping to create living spaces.
A report from the Federation of Master Builders, in 2017, suggested that as many as 400,000 new homes could be built or created through conversions above shops.
The conversion of empty office blocks or shops into homes, could save greenfield and brownfield belts, whilst supplying much-needed homes from existing structures, saving on tools and materials by recycling buildings.
Borrowing levels on a commercial bridging loan can be available up to several million pounds and financing can be completed in two to four weeks.
On commercial property, you can borrow up to 75% loan-to-value, with most lenders averaging at 65%.
Exit strategy on a commercial bridging loan
Once again, you must have a clear exit strategy as typically any bridging loan must be redeemed within 24 months.
Your options are to refinance to a term loan, which is usually secured for three or more years for commercial lending. This suits a scenario where a building has been renovated for commercial or residential letting, and the borrower is interested in retaining the investment and generating monthly income.
Alternatively, you may look to sell the building for capital growth and pay off the outstanding loan, providing enough value has been created in the property.
As the housing crisis continues to attract concern and political debate, this section of the bridging market could be set for growth in the coming years.
As indicated by falling transaction volumes over the past 12 months, selling a built asset is never easy in today’s market, whether it’s a residential or commercial property. Offers that realise the full value of an asset have, in my experience as a specialist finance loan provider, taken longer than normal to materialise over the past year, especially when a developer is selling multiple units at a time.
Some developers will opt to reduce their prices for a quicker sale – and we understand that, especially when they’re waiting for multiple sales rather than one.
But others, equally understandably, are wary of dropping their prices and want to realise what they believe to be the full value, even if that means waiting longer to find the right buyer. For those developers, companies such as ours can offer development exit bridging loans to give them some breathing space, and we’re seeing more and more developers seeking that kind of facility.
There are a number of reasons a developer might want such a loan. Development finance for the project at hand might have tight terms that require payment within a few months of completion. Active developers might also want to free up equity to fund other schemes while they wait for a sale at the right price. These developments are completed, often to time, and are effectively de-risked – so why shouldn’t developers be able to pull some money out of them?
Whether or not a developer is looking for this type of loan is naturally very dependent on the term they have on their development finance, how complicated the build was, any time or cost overruns, and how much time they have to sell, but nonetheless it is a trend we are seeing across both residential and commercial markets. It is not just our existing clients that are seeking development exit loans; we are seeing a mixture of smaller, new developers alongside larger, more established players looking for this type of flexible finance.
Bridging loans
For the most part, developers simply want more time to find the right buyer, and in most cases they’re seeking a like-for-like refinance of existing loans. They might have a development loan reaching term end, for example, and a bridging loan from a company like ours can give them piece of mind by effectively increasing the term on their finance.
These bridging loans are not necessarily more expensive either: at the lower end of the loan-to-value spectrum we offer rates starting at 0.55% a month, and we do not charge any exit fees. That means that, as well as providing developers with more time, these loans can also sometimes be more cost-effective.
It is something we have been doing for years, but now that more companies are looking for this type of solution in today’s market, we hope to be more flexible than ever. We understand that circumstances change quickly on development projects. That’s why, in some cases, we can offer loans with an 18-month term, which is longer than for a normal bridging loan.
Buy-to-let
We’ve also had cases where investors looking to sell a number of residential properties have moved into one of the units, and the loan then becomes a regulated bridging loan. Essentially, if there are variations along the way or bumps in the road, we’ll be able to accommodate it – and we have a large, dedicated loan team on hand to see to our clients’ needs.
Unlike some other bridging lenders, we also provide a full spectrum of finance products, including development finance, which means we understand developers more than most. Last year, we also launched longer-term second charge mortgages on both residential and buy-to-let securities and we have exciting plans to launch into other areas of lending next year in the hope that it gives our clients surety of not having to jump between different lenders, offering them a one-stop shop for their financing needs.
Development exit bridging loans are a product that we are very much used to offering, and the main variable on our part is the length of the loan term. When a developer is selling multiple units, such as a residential apartment block, then we are very used to working with them to come up with the best strategy.
Development finance
We believe the increased flexibility of companies such as ours is part of the trend that is seeing smaller, specialist lenders stepping in and providing ever-more cost-effective solutions for developers, which helps get more homes and offices built. Even with Brexit and all the concerns people have about the housing market, there is still a shortage of property and there are pretty big targets to hit to meet housing needs, which makes specialists like us more important than ever.
Our development finance starts at 7% a year, and that is getting close to the high street and other established lenders. Specialist lenders like us can also give developers more leverage – and clearly, cash is very important when it comes to development. Having the liquidity to make sure the project gets finished correctly, and on time, is vital. The ability to push the loan-to-value to a higher level than the high street or more traditional development lenders is therefore an increasingly attractive option.
By offering the full spectrum of financing options, we hope we can build long-term relationships with our clients, and give them the confidence that we will be with them no matter the situation. In that way, development exit bridging loans, as well as our upcoming buy-to-let product, feel like a natural extension of what we have always done and will continue to do.
Predicting what will happen to the residential and commercial markets over the next year is difficult, but as long as transactions are taking longer than usual, bridging loans can offer developers the time and support they need to sell their high-quality completed assets at the right price.
Bridging experts have called for the introduction of a bridging qualification to improve reputation, education and self-regulation across the industry.
Brian West, director of Central Bridging, who sits on the board of the ASTL (Association of Short Term Lenders), namedropped the old FISA (Finance Industry Standards Association) qualification for secured loans, which he said drove up standards and confidence.
He said: “I regularly push for examinations and training. Pretty much everybody, every underwriter within the main brokerages took the old FISA qualification and got their certificate.
“The bridging industry should be more aspirational. Why don’t we have a bridging foundation course?
“Let’s pull together the ASTL, NACFB and FIBA and some of the bigger lenders. If Brightstar put all its staff through it then Positive would follow suit as would every brokerage out there.
“With regulators you have to be seen to be doing the best you can to self-regulate, so it’s better if the FCA looks at an industry where the main trade federations and bodies are pulling together to produce a bridging foundation examination, even if it’s only a one or two day course to get a basic foundation in bridging rather than seeing an industry doing nothing.
“There are plenty of lenders and organisations that would get actively involved and would be prepared to pay and help.”
Rob Jupp, chief executive of Brightstar, has called for a bridging qualification before and is surprised one hasn’t yet been introduced.
He said: “The short-term lending market has grown significantly in recent years and lenders, distributors and brokers have all worked hard to raise standards and make bridging finance a more accessible solution for thousands of customers.
“But short-term mortgages are a distinct product that come with their own considerations and I am staggered we have still not introduced a qualification that can help brokers to demonstrate their understanding of the sector.
“We worked hard to get this across the line when I was chairman of the AOBP and we need to continue to continue that work to help continue to raise standards in our industry.”
Damien Druce, director at Assetz Capital, agreed, emphasising it should be driven by the industry, not regulators.
He said: “There’s definitely room for this but it should be driven by the industry rather than the Institute for Financial Services or the FCA.
“If you can get all the trade bodies in a forum with some key players, brokers and lenders, you can probably come up with some kind of qualification that’s probably not as formal as a CeMAP but has that practical side to it.
“The biggest benefit to this is the reputational enhancements to the bridging market because there’s still probably a little stigma attached to it, although it’s nowhere near as it was a long time ago. It’s improved massively.”
However Mathew Tooth, chief commercial officer at LendInvest, was against the idea of an industry wide qualification, favouring an on-board course at individual organisations instead.
He said: “It’s up to each to decide how they work and what they invest in. I think it should be an on-board course.
“The notion of a full qualification with an exam at the end where bridging and development is so interlinked and the syllabus would expand, wouldn’t serve a great purpose but some kind of on-board course lasting a couple of days for different types of stakeholder, for someone starting at a brokerage, someone starting at a lender, would be really good.
“So I’m for on-board training but not an industry wide qualification at this stage.”
Potential buyers taking stock of an impending Brexit may be behind regulated bridging loans falling in the third quarter to the lowest level since Q1 2015.
That’s according to Gareth Lewis, commercial director at MT Finance (mtf), as it was revealed the number of regulated loans conducted by Bridging Trends contributors fell for the second consecutive quarter. They dropped to 31.6 per cent of all lending in Q3 2018, compared to 36.8 per cent during Q2 2018. This is the lowest level since Q1 2015, when the number of regulated bridging loans transacted was at 31.5 per cent of all lending.
Lewis said: “The data continues to show that property investors are seeking attractive opportunities to acquire properties where they can add value, a trend that shows no sign of slowing down. Conversely the transaction flow in the regulated space has continued to show signs of slowing down. Is this a direct response to the everyday purchaser taking stock of Brexit and holding fire before looking to commit to the purchase of a new residence?”
Bridging loan volume transacted by contributors hit £213.35 million in Q3 2018, an increase of £15.4 million on the previous quarter. This is the highest figure to date and comes as another new contributor joins Bridging Trends — specialist finance packager, Clever Lending.
First legal charge lending increased to 84.4 per cent of all loans during Q3 2018, up from 80.9 per cent in the second quarter. Meanwhile, second charge loans decreased to 15.6 per cent compared to 19.1 per cent during Q2 2018.
For the second consecutive quarter, refurbishment purposes were the most popular reason for obtaining a bridging loan, as borrowers continued to add value to existing and newly purchased properties.
Mortgage delays were the second most popular reason for obtaining a bridging loan, accounting for 19 per cent of all lending, down from 20 per cent in the previous quarter. Whilst loans for auction purchases and business purposes increased in the third quarter by 3 per cent and 1 per cent respectively.
The average monthly interest rate dropped to 0.78 per cent in Q3, from 0.83 per cent in Q2 2018 — the lowest rate recorded since Q4 2016. This activity translated into lower LTVs, with average LTV levels in Q3 decreasing by 1.5 per cent to 55.4 per cent.
The average completion time on a bridging loan application jumped to 46 days during the third quarter from 43 during the second quarter, as service and resource levels were impacted by annual leave. The average term of a bridging loan in the second quarter remained at 11 months.
Sonny Gosai, head of specialist lending at Clever Lending, says the business is privileged to be on board with Bridging Trends, which “provides much needed analysis of the market”. He added: “The bridging industry is booming at present and forms a large part of our key distribution and remains one of our main focuses.
“Whilst the data suggests that there has been a drop in regulated bridging activity, we have recently set up a team solely to provide regulated bridging advice as we have seen a growth in this area particularly for enquiries. It will be interesting to see the next quarter’s Bridging Trends results.”
Meanwhile, Luke Egan, head of specialist property finance at Pure Commercial Finance, says the market is becoming more competitive. He said: “Regarding the drop in regulated bridging transactions, we operate slightly different to a lot of specialist brokers as we take a large amount of direct business, so we have more regulated bridge enquiries as a lot of clients are home movers.
“However, the market is becoming more competitive which would explain the decline to an extent as there is a finite amount of business being passed around a larger number of people.
“Interest rates seem to be only going one way. I believe one of the main regulated bridging lenders will drop their rates again soon in order to stand out in a crowded marketplace. Completion times increasing again is a worry, speed seems to a forgotten pre-requisite of bridging and more of a USP these days.”
