Bridging lending value soars over £2billion

Gross bridging lending has reached a value of over £2billion in the last 12 months.

According to a report by West One Loans, gross bridging lending has grown 26 per cent in the 12 months leading to 1 March, reaching £2.02billion.

The latest Bridging Index from the one of the largest privately funded bridging lender in the country, puts the increase down to a greater number of loans in terms of volume, which is up 34 per cent higher than in the previous twelve months.

Director of West One Loans, Duncan Kreeger, commented: ‘Just as the UK economy has turned a corner, demand for the right type of finance is on an exciting new path. In the last few months the market for bridging loans has been dramatically busier than at the same point last year. Businesses need finance to invest and expand, and every element of the property industry is gaining momentum by the week.’

Although the industry saw a seasonal dip of 16 per cent in the last two months of 2013, the number of bridging loans saw an increase of 35 per cent over the twelve month period and lending from January to March this year is higher than the same period in 2013 by 23 per cent, with the average bridging loan standing at £444,000 over January and February 2014.

Mr Kreeger said: ‘Bigger deals are always exciting, and as property prices grow so will the size of loans. But the biggest factor behind the industry’s expansion is definitely the sheer volume of deals.

‘That’s great for lenders and particularly good news for brokers. But it matters most to those property professionals and business people who depend on alternative finance to make their projects reality.’

The interest rates for bridging loans stands at 1.19 per cent, the same as the monthly interest rate, which is significantly lower than a year ago when the 12 months ending 1 March 2013 saw the interest rate stand at 1.34 per cent a month. Monthly product rates currently stand at 4.9 times those of 10 year government bonds, with a monthly spread of 0.90 percentage points, supporting the view that potential returns for investors funding bridging loans remain several times the total return of mainstream investment classes.

Mark Abrahams, CEO of West One Loans, said: ‘Bridging is becoming ever more competitive — in stark contrast to more traditional forms of finance. ‘For example, standard variable rates in the mainstream mortgage market have been rising since April 2012, according to the Bank of England. But our analysis shows that bridging rates have fallen steadily over the last two years.’

LTV ratios are also at a six-month low, with an annual fall of 0.8 per cent leaving 2014’s LTV ratio at 46.3 per cent, compared to 47.1 per cent in the year to February 2013, while the average LTV was 45.2 per cent in the two months to 1 March, 2.9 percentage points lower than the preceding months.

Mr Kreeger concluded: ‘As the economy heats up and the property market goes from strength to strength, demand for bridging loans keeps growing. Meanwhile, these same factors mean the security underpinning loans is becoming more valuable — forming a virtuous circle.

‘Bridging has even further to go, and it’s clear the value of properties used as security will be less of a restraint as we move through 2014. Lower loan to value ratios mean the growth of the bridging industry is underpinned more solidly than ever before.’

Today's Conveyancer