Smaller BTL investors have returned to bridging, says lender

The lender’s bridging index confirmed what short-term lenders’ association ASTL had found in its latest market report, namely that applications for bridging loans were up significantly in Q4 of 2016, following a dip in Q3.

While ASTL had found a 27.5% increase in the value of applications made in the three months to December, compared with the previous quarter – West One observed record levels of monthly lending in November 2016.

Managing director Stephen Wasserman said: “In times of prolonged economic uncertainty, it is to be expected that there will be some sort of stagnation in the market, and Brexit clearly caused many people to stop and take stock in the second half of 2016.

“However, the sector ended 2016 with a significant recovery, showing the resilience of the market and giving us real cause for optimism in 2017.”

According to West One, the size of a typical bridging loan grew from £798,198 in July to £1,189,574 in September before adjusting to £1,037,128 by the end of the year.

This shift in loan size suggested smaller investors chose not to make purchases immediately following the Brexit vote but returned towards the end of the year, West One said.

Historically low interest rates may be partly responsible for the increasingly buoyant market, as was the fact demand for housing continued to outstrip supply, said West One.

Interest rates continued to fall throughout the second half of 2016 after a small rise in May, as a result of the Bank of England’s decision to cut the base rate to 0.25%.

As a result, competition in the sector increased and helped push down prices, particularly after a the Q3 lull, which meant there was significant liquidity in the market to be lent out.

This also meant borrowers were likely to continue to look at alternative financing options in the future, West One said.

Another trend that could play in the hands of bridging lenders were the upcoming changes to buy-to-let taxation, which are set to push more landlords to make their purchases through limited companies and special purpose vehicles, which are more tax efficient, the lender said.

Wasserman said: “At West One, we’re seeing a similar uptick in customers taking out our bridging loans via limited companies or who are securing on semi-commercial property, which are both exempt from the new tax rules.

“This not only shows the importance of bridging finance in supporting how property professionals finance their buy-to-let portfolios, but also the flexibility of bridging lenders to adapt to changing conditions.”

He added: “We are seeing signs of the market quickly returning to growth, as people look for loans with the flexibility that only bridging and other specialist forms of finance can provide.”