With the annual gross bridging lending total now standing just shy of £2.5bn, this means an average of £48.7m is being taken out on a weekly basis – or £9.7m per day – by homebuyers, developers and businesses to meet their short-term funding needs.
The yearly gross lending total for 2014 represents a 24% increase from 2013 as bridging continues to consolidate its reputation as a viable solution for those seeking instant liquidity.
Last year finished on a high too, with the £450m of gross bridging lending in November and December a 4% improvement on the previous two-month period (£433m) and a 7% improvement (£418m) on the closing months of 2013.
Duncan Kreeger, director of West One Loans, says:
“The £2.5bn of annual gross bridging lending is the headline statistic that preoccupies us all and rightly so, but when you break it down to a day-by-day lending figure it gives a real sense of how useful bridging loans are proving to be on a daily basis.
“Almost £50m a week is a significant chunk of finance and allows a sizeable number of individuals, developers and business owners to complete projects that would otherwise have failed without short-term funding.
“You only have to go back to the summer of 2011 when the daily figure was less than a third (£3.2m) of what it is today to see how much the bridging market has grown and how much more business lenders and brokers are handling on a day-to-day basis. This expansion has been the result of sterling work by key stakeholders to raise the profile of the bridging sector and highlight its usefulness, but has also coincided with high street lenders showing a reluctance to consider short-term or slightly unusual cases which is where bridging loans often ride to the rescue.”
Despite a slight dip in December from the preceding month’s activity, a strong November ensured that bi-monthly loan volumes increased by 3.4% from September/October and by 10.9% when comparing the year to December 2014 with the previous twelve months.
Average loan sizes continued to trend downwards in the final two months of 2014, with the typical transaction in November and December standing at £459,679. This represents a 12.8% fall from the two months prior, but an annual improvement of 18.2% shows that average loan sizes are still following a generally upward curve.
Duncan Kreeger adds: “Loan volumes witnessed something of a seasonal slowdown in December, but a solid November meant that the two-month comparison was still favourable. Cross-referencing this annually – a less volatile indicator – shows this was a blip and that volumes are heading in the right direction, with nothing to suggest any slowdown into 2015.
“Average loan sizes have cooled from the large typical transactions seen last summer, but at more than half a million pounds for 2014 as a whole, bridging loans are still substantial transactions in the main. This is put in clearer context when you consider that the average value of a mortgage for house purchase is £165,000 according to the British Bankers’ Association, meaning that the average bridging loan is more than three times larger.”
Bridging loan to value ratios remained consistent throughout 2014 and averaged 48.5% for the year as a whole, up from 46.4% in 2013.
Duncan Kreeger comments: “Bridging borrowers had slightly less capital to back their projects as last year progressed, but the increase in LTV ratio has only been marginal. There is certainly no cause for concern as, at less than 50%, average bridging LTVs are still eminently sensible.
“This means that bridging borrowers have plenty of their own skin in the game and represent a relatively low risk to short-term lenders. By way of contrast, intermediaries in the mainstream mortgage market are predicting a return to 100% LTV home loans by the end of 2015 on the back of the number of available 95% deals increasing. We may see average bridging LTVs gradually creep upwards throughout the coming months, but any increases will be negligible.”
Interest rates on bridging loans averaged 1.16% for the final two months of 2014 and 1.17% across the year as a whole. This is a slight decrease from the 1.19% average for the twelve months to December 2013.
The spread between bridging interest rates and 10-year Government bonds remains fairly comprehensive. With gilts returning 0.16% a month at the end of December, investors backing bridging loans could expect a return around a whole percentage point more favourable on a monthly basis.
Duncan Kreeger concludes: “Bridging interest rates have steadily fallen over the past 18 months or so and while they are already at extremely competitive levels, there could be further downward movement in the year ahead.
“Any further reductions are dependent on continual economic improvement and that whichever party prevails in the General Election ensures that planning regulations are not tightened in any way. Given the strides that have been made in construction recently this is unlikely, but either way further rate reductions are unlikely before May."
