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Bridging lending reaches new high as interest rates expected to rise

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  • 28/11/2017
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Bridging lending reaches new high as interest rates expected to rise
Gross bridging lending jumped to £4.7bn in September from £4.3bn in June to exceed the £4.4bn pre-EU referendum peak, according to the latest West One Bridging Index,

The latest figures reveal that gross annualised bridging lending for the quarter ending in September yielded a record £4.7bn.

Following a strong performance in Q2 2017, which saw £874m lent, the report showed that lending reached £851m in Q3, despite the quarter including the traditionally quieter summer holiday period.

The bridging sector bore witness to a pronounced slump in the wake of the EU referendum, but the latest figures indicate a robust recovery, said West One.

West One sales director Marie Grundy (pictured) 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.”

She continued: “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,” Grundy added.

 

Emerging trends

Following a trend emerging in the first half of 2017, the bridging sector is continuing to see a shift in market dynamics with a higher volume of smaller transactions.

Average loan size dropped to under £600,000 in Q3 2017, against the £900,000 average in the same period last year.

But, despite fewer £1m+ properties coming to market, Q3 lending was held up by “very healthy” numbers of smaller transactions, coupled with upbeat property markets in regional hotspots such as the East Midlands and Greater Manchester.

Grundy commented: “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,” she added.

 

Regional picture

Regional data painted a mixed picture of the market, with London continuing to cool against a backdrop of housing hotspots.

Supported by property price data from Nationwide and Royal Institute of Chartered Surveyors (RICS) indicators, the West One index showed that London – particularly central London, was down for Q3.

Nevertheless, UK Finance regional mortgage data showed mortgage lending in London increasing 10% against Q3 2016.

Driven by highly constrained supply, the East and West Midlands, along with the South West saw the biggest price growths. And although the wider South East region showed a “markedly negative outlook”, it is still growing – albeit at a slower rate.

On a more granular note, Savills research identified pockets of opportunity in Midlands locations such as Birmingham City, Leicester-Nottingham and Northampton, central Manchester in the North West, as well as central Glasgow and the Galashiels area of Edinburgh commuter hinterland.

Meanwhile, September’s RICS Residential Market Survey of its members pointed to “likely buoyancy” in the Northwest, Scotland and Wales, with the data also pointing to continued positive market conditions in the East Midlands and South West.

 

Interest rates

The index also showed that Q3 interest rates were up from the Q2 low of 0.96%, returning to just above 1% per month – with West One saying that it expected a further rise in bridging rates during Q4.

With the Bank of England base rate changes widely expected ahead of the November 2 announcement, West One noted how it was “likely that the market had already begun to factor this shift in.”

Danny Waters, chief executive officer of Enra Group, commented: “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,” Waters added.

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