Special Features

Can the short-term lending market sustain its growth in 2021?

Jonathan Caplan - Grosvenor Funding
|
1st February 2021
Jonathan Caplan Grosvenor Funding
"These challenging economic conditions could trigger a range of major issues including an increase in property repossessions; further tightening of BTL lending; and P2P lenders facing a drying-up of funds"

Despite the pandemic, the bridging market appears to be in rude health at the start of 2021, following a welcome boost in demand for short-term lending towards the end of last year. Recent figures from the ASTL show that bridging applications hit their highest ever level in Q3 2020 and completions rose by more than 40%, as the market bounced back from the impact of the first lockdown.

The data also shows that applications totalled £7.6bn in Q3 2020, representing an increase of 39.1% over the previous quarter and an increase of 25.7% on the same period in 2019. Completions in Q3 2020 were £680 million, which is an increase of 44.8% on Q2, although still down by 27.6% on the same period last year, reflecting the influence of the first national lockdown on the previous quarter’s originations activity.

Over the last two months, we have seen a surge in demand for short-term finance for property acquisition, up by 25% year on year. This has been fueled by the Chancellor’s stamp duty holiday, which has offered savings of up to £15,000. Pent up demand due to the lockdowns has resulted in a rush of property investors taking advantage of favourable market conditions. They have opted for short-term loans for quick finance to acquire property, rather than use traditional high street banks, who have tightened BTL lending during the pandemic.

Last year saw a surprising buoyant housing market, with property prices soaring to a six-year high as people rushed to take advantage of the stamp duty holiday and re-evaluated their living arrangements during lockdown. However, analysts are warning that a sharp drop in activity is looming, with mortgage lenders and economists citing the end of the stamp duty holiday in March 2021 and rising unemployment, as a potential trigger for a collapse in house prices over the next few months.

Halifax, Britain’s biggest mortgage lender, estimates an annual drop of between 2% and 5%, while the Office for Budget Responsibility, the government’s economic forecaster, is more pessimistic, predicting an 8% fall. According to consultancy Pantheon Macroeconomics, the mortgage market is heading for a hard landing.

So, what’s in store for the short-term lending market? Redundancies were rising at the fastest rate on record towards the end of 2020, as companies struggled to stay afloat during the pandemic. Unemployment is poised to spiral up in 2021 once the furlough scheme is closed – scheduled for the end of April.

These challenging economic conditions could trigger a range of major issues including an increase in property repossessions; further tightening of BTL lending; and P2P lenders facing a drying-up of funds as result of high-profile failures such as Lendy.

However, it’s not all doom and gloom. Amidst all the fallout from the pandemic, the short-term lending market is on a strong footing, as this specialist area of finance is required in all types of markets as property investors acquire property and need a quick turnaround. Asset rich, cash poor investors always need a solid source of available funds.

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