The latest edition of the quarterly report revealed that gross annualized lending increased from £4.3bn in June to exceed 2016’s pre-EU Referendum high of £4.4bn and be 10% above the same period in 2016.
The findings from this iteration of the Bridging Index provide further evidence that the bridging sector has recovered from the pronounced slump in the Q3 of 2016 that followed in the wake of the Referendum result. The robustness of that recovery is reflected in the Q3 2017 results for ASTL members, lending £851m in a quarter that included the traditionally-quieter summer holiday period, only slightly less than the record £874m in Q2.
Within this recovery, there do appear to be some changes to market dynamics however, with a higher volume of smaller-sized transactions characterizing recent months.
Marie Grundy, Sales Director of West One, said:
“2017 has proven to be a strong year for bridging finance, with a clear return to form after the post-Referendum turbulence this time last year. Seeing further robust new business performance in a quarter that includes the typically-quieter summer holiday period is very encouraging. The wider property and property finance markets have flattened against continued political uncertainty due to slow progress negotiating Brexit, and the prospect of interest base rate rises finally arriving. This new market high therefore reflects the underlying strength of bridging.
"At West One, we’ve seen robust growth in our bridging this year, to reach around £450m of total lending and experiencing monthly lending records exceeding £60m. As we discussed in Q2, a major driver for that continued growth is demand from property professionals for smaller projects that are better suited to bridging funding than to full-blown development finance. We believe there is still that slack in the market and expect that the bridging market will continue to this pattern of solid growth, despite some slowing in the housing market. With pockets of growth outside London and the South East, we anticipate seeing more of that growth regionally.”
The emergent trend in the first half of 2017 of smaller transaction sizes has continued through the 3rd quarter. Average loan sizes dipped under £600,000 vs averages in excess of £900,000 at the same time last year, flattening-out the longer-run trend in the last 2 years that had previously seen significant growth. There have been fewer large transactions coming to market, reflecting the relatively depressed market for high-end properties with values over £1m, especially in London. However, there have been very healthy numbers of these smaller transactions, meaning total lending has held up well in Q3.
Interest rates in Q3 recovered slightly from Q2’s low of 0.96%, returning to just above 1% per month. With Bank of England base rate changes widely expected for some months ahead of the 2nd November +0.25% announcement, it is likely that the market had already begun to factor this shift in.
A further rise in bridging rates during Q4 can therefore be expected, though the sector remains highly competitive. Well-funded players in the market will be able to maintain attractive rates for customers with special circumstances, who either need flexible loans or need funding with a quick turnaround, thereby maintaining the attractiveness of alternative lending, even if base rates rise.
Danny Waters, CEO of Enra Group, said:
“The bridging sector has performed well during Q3, despite the backdrop of concern around the progress of Brexit negotiations, and economic indicators pointing to both a slower economy and to the interest rate rise that ultimately came in November. Whatever happens next, the industry must continue to adapt to conditions, and provide the diverse and flexible funding options that property professionals need, so they can take advantage of the changing, regional landscape that we are seeing develop.”
