Last week saw the release of the latest quarterly Bridging Index from West One Loans. Gross Lending in bridging finance increased in 2011 by a huge 110% from 2010 to £911 million. This figure is more than £100 million higher than the projections forecast by the previous Bridging Index. In December 2011 gross lending was more than two and a half times higher than December 2010.
The volume of loans in 2011 increased by 62% and net lending rose by 67%. This is due to the rise in the buy-to-let market. As the rental market demand increases there has been a rise in the number of property investors using bridging finance to fund their projects.
Duncan Kreeger, Chairman of West One Loans commented:
“The first time buyer mortgage famine means a feast for property investors. Rents are high, property prices are deflated, and that has created a vibrant rental market that investors are piling into.”
“Despite banks increasing the number of buy-to-let mortgages, they have been unable to keep pace with the proliferation in demand. Buy-to-let lending is still very low by historic standards. In 2011 there were only 124,000 buy-to-let loans, compared to 346,000 in 2007. As a result more landlords are using bridging loans to finance the development of properties they can’t get mortgages on. Demand for bridging loans is sky high, and will continue to push towards the stratosphere in 2012.”
Analysis from West One Loans reveals the market has shifted markedly towards residential finance, as there is increasing demand from buy-to-let investors for bridging loans. In 2011 84% of all loans by volume were to residential property investors, compared to 77% in 2010.
The average loan size also increased from 2010 by 28% to £266,000, although this was a slight fall from the July figure of £322,000. This suggests that investors are finding bigger projects, but also reflects the seasonal nature of the property market.
The average Loan-to-Value has increased steadily since the beginning of 2010, and rose from 44% to 47%. This reflects the increase in the size of loans being required by borrowers. Duncan Kreeger added that:
“The fact more investors are turning to bridging — particularly buy-to-let landlords — is closely linked to rising LTVs. This is encouraging more investors to turn to bridging, where high LTV loans are more accessible than on the high street. Greater appetite for larger and more ambitious projects will keep loan sizes high, which in turn will help support LTVs in 2012. We expect LTVs to remain high throughout 2012.”
The average interest rate on a bridging loan declined during 2011 to 1.41%, from 1.64% in 2010. This is making bridging finance a more attractive option for buy-to-let investors.
The statistics released by the West One Bridging Index, the only market research available on the bridging loan sector, shows an optimistic outlook. Demand from buy-to-let investors is driving huge growth of the bridging finance industry. As mainstream lenders struggle to cope with the demand for buy-to-let mortgages investors are turning to other ways to finance their projects. West One Loans are forecasting this will push growth in the bridging loans sector. The rapid rate of growth keeps the industry on course to meet West One’s projection for gross lending to break the £1bn mark by 2013.
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