"As rates come down, short-term loans become a financially viable way of financing for more and more situations so actually increases business into the sector"
Bridging Trends groups together the figures from MT Finance and specialist finance brokers Brightstar Financial, Clever Lending, Complete FS, Enness, Impact Specialist Finance, Positive Lending, Pure Commercial Finance, Y3S and UK Property Finance.
The figures show that the average monthly interest rate on a bridging loan fell to 0.74% in the first quarter of 2019, down from 0.80% in Q4 2018, the lowest rate ever recorded by Bridging Trends since its launch in 2015.
The fall in rates was driven mainly by a boost in regulated lending over the past three months. Regulated bridging loans increased for the first time since Q1 2018, with the number of regulated loans conducted by contributors increasing to 38.3% in Q1, compared to 31.6% during Q4 2018.
The spike in regulated bridging activity also translated into lower LTVs, with average LTV levels in Q1 2019 decreasing to 51.3%, from 57% in the previous quarter.
Bridging loan volume transacted by contributors hit £185.32 million in Q1, 8% lower than the £201.57 million lent in Q4 2018 but 20% higher than a year earlier. This comes as two new contributors join Bridging Trends - specialist finance packagers, Impact Specialist Finance (previously AToM), and UK Property Finance.
The most popular reason for borrowers taking out a bridging loan in Q1 was for the purchase of an investment property, as investors continue to purchase property despite a backdrop of uncertainty surrounding Brexit.
The second most popular reason was for chain-breaking purposes, accounting for 19% of all lending in the first quarter.
Chris Whitney, head of specialist lending at Enness, commented: “I don’t think it comes as a surprise that interest rates are still under downward pressure as some of the industry's more mature lenders seek out cheaper costs of funds to stave off the newer entrants - which is good news for consumers. As rates come down, short-term loans become a financially viable way of financing for more and more situations so actually increases business into the sector in my view.
“It's still surprising where in a market where some lenders seem to be fighting for market share by increasing LTVs that the average LTV in the index is still only 51%. In terms of volume I think we see more demand for higher LTVs across the board, but the average LTV is possibly dragged down by larger transactions at low levels i.e. we have just completed a £5m facility against a £26m asset.
“Surprised to see that only 8% of the loans written were for business purposes which we see a lot of demand for. Our buy-to-let team have reported that there has recently been a drop in service standards from buy to let lenders and loans are taking much longer to be agreed and complete. Borrowers are generally getting what they want but just not quickly enough which I think is reflected in the report’s reasons for bridging.
“40 days average completion time has shown a fall but still surprisingly long and, in my experience, outside of most borrowers needs and expectations. The industry must have a hardcore base of borrowers who like to plan ahead, and I don’t think any of them are mine!”
Gareth Lewis, commercial director at MT Finance, said: "Property investors are continuing to turn to bridging finance as a support tool, as reflected in the 22% utilising the product for investment purposes.
“With highly professional specialist lenders offering flexible products at competitive rates, bridging finance has become an attractive proposition to those property investors who are looking to expand their portfolio and need certainty when conducting their business and who often need to move swiftly to capitalise on an opportunity."
Dale Jannels, managing director of Impact Specialist Finance, added: “House buying and owning can become complex, especially in the current climates. As a result, we are seeing an increasing demand for short-term finance to help meet completion deadlines or to assist funding specialist finance projects.”
