Bridging Lending Growing in Popularity
3 minute read
The bridging loan industry made a positive start to 2016 following on from an excellent end to 2015 as bridging loans go from strength to strength. The latest figures from West One Loans’ bridging index show that gross annual bridging lending rose to £3.6bn in February, up from £3.5bn at the end of 2015. This represents a modest 3% rise in lending when compared to the figures for December, and shows that growth is starting to stabilise after more dramatic rises over the last year.
Why is bridging lending increasing?
The growth in popularity of bridging finance is down to a number of factors that have seen borrowers rely on this flexible lending type to plug a funding gap. Increasingly, brokers have turned to bridging loans after being unable to source mortgages for their clients. According to data from the bridging loan directory, 91% of the 181 brokers surveyed secured bridging loans after being unable to source mortgages for their clients, while 61% of brokers used bridging finance as an alternative source of funding to a fill a liquidity shortfall. As well as a growing reliance on bridging loans by brokers, the rush to beat the stamp duty surcharge introduced in April was another factor behind the rise. There was also an increase in demand from buyers looking to unblock property chains. A final contributory factor was the increase in the number of property developers using bridging loans as part of their investment strategy when buying residential properties in need of renovation. In many cases, this group would use the capital to buy properties at auction, which also fits with the surge in auction buying that has been noted in the last couple of months.
Emerging trends in the bridging industry
While the number of bridging loans agreed was up in February, the average size of those deals was down, falling to £937,189 from £983,990 in December. However, this 5% drop had been anticipated following record high average loan amounts at the end of 2015. There has also been a fall in the average first charge loan-to-value ratio to 47.4%, as the sector continues in its commitment to responsible lending. The only figure to remain stable was the average interest rate, which remained at 1.11%. This is the eighth consecutive month interest rates for this type of short-term finance have remained below 1.2%. With an influx of new lenders and a spike in competition, now could be a good time to get the right deal on a bridging loan. For more information, get in touch with our bridging loan specialists today.