The number of bridging loans has “bounced back” to a new peak of £140.9m, with Q3 posting 54% more volume than a heavily sedated Q2.
Short-term lender MTF has canvassed the sector, pulling in results from leading players Brightstar Financial, Enness Private Clients, Positive Lending, and SPF to come up with a pretty good overview of how the segment is operating right now. It it seems in rude health, with developers and investors packing in deals as market turbulence and economic uncertainty throws up opportunities to those willing to jump in.
As a result, Q3 delivers an annual high for the bridging market, with 12% more volume compared to Q1’s £125.3m, and 6.6% more than Q3 2015’s £131.7m. Second legal charge lending increased to 19.4% of all loans during Q3 2016, from 16% in Q2 2016, despite several lenders temporarily stopping second charge lending following the Brexit decision.
Unregulated short-term finance continued to outperform regulated bridging loans, although the gap between seems to be closing, with the number of regulated loans climbing to 49.2% of all lending.
Mortgage delays were again the most popular reason for borrowers going to the bridge, accounting for 30% of all bridging volume in Q3. Refurbishment drive 23% of activity.
Average loan-to-value levels fell to 46.9% in Q3, from 47.4% in Q2.
Here’s an infographic:
Joshua Elash, director of MTF: “The figures are very positive with a large increase in the reported levels of lending. We also see a significant increase in the total percentage of the reported lending activity which is regulated. This invariably is attributable to the implementation of the MCD, with its introduction of regulated consumer buy-to-let lending.
“This larger total percentage of regulated lending appears to have had an adverse impact on the average time a loan takes to complete, and more positively on the average weighted monthly interest rates being charged. The results continue to point to bridging finance as an important financial tool, with demand remaining strong at sensible LTVs.”
Chris Borwick, Associate Director of SPF: “Where perhaps the consensus was that the post-Brexit market in short term finance would be extremely challenging, it has actually turned out to be quite resilient. We have certainly seen an increase in most areas with enquiries coming in of all shapes and sizes.
“Market uncertainty has created opportunities for property investors, but also disruptions in normal residential transactions, so investors are looking to bridging finance in order to capitalise.”
Kit Thompson, Brightstar’s director of bridging loans: “Although loan-to-values have been restricted by some lenders post-Brexit, competition amongst lenders is forcing rates down. The latest figures reveal that, on average, it is taking three days longer to turn around a bridging loan compared to Q2 this year when the average completion time was 46 days. This is largely down to delays with valuations, down-valuations and legal delays, something which the sector (and wider industry as a whole) continues to struggle with. That said, new bridging enquiry levels remain high and there are plenty of funds out there to be deployed. It just takes longer to get these loans through than previously.
“This could indicate that lenders are becoming slightly more vigilant and mainstream lenders even more so as mortgage delays, which can often cause unnecessary costs for borrowers, are still the most common reason why borrowers seek short-term finance and, as a result, they are now leading 30% of bridging cases.”
Paul McGonigle, Managing Director of Positive Lending: “The results on the report reflect accurately how our business has seen Q3 with a stronger appetite from both potential clients and lenders. Following Brexit some lenders took a more conservative view, and rightly so as the property market was carefully monitored. In Greater London the market has held its breath but now we are in a position where at present the potential reductions are not as drastic as first feared.”
Chris Whitney, Head of Specialist Lending at Enness Private Clients: “Great to see the lending up, slightly surprising as we certainly saw some drop off in new enquiries over the holiday period. Perhaps this was just business coming onto the books pre holidays and pre-Brexit with completion time being pushed out to 49 days now!
“At first glance that does seem to be a long time for a ‘bridge’ to take to complete, but hidden within the numbers are all sorts of transactions including development and refurb loans which generally take longer. Also perhaps we need to rename “mortgage delays”. Based on experience they aren’t delays as such but just a mismatch of timing between the speed at which the client’s preferred long term lender can get funds in place and the timing of the desired transaction. The High Street Banks (and also Challenger Banks) are actively lending but the processes they have in place are just taking longer and longer in many cases several months.
“I think regulatory pressure and even more stringent liquidity rules will only see the larger banking institutions become even less user friendly albeit cost of funds remains attractive longer term which the bridging lenders will not be disappointed to hear.”