The industry data, collated by West One Loans and drawn from in-house management data and sector trade bodies, suggested buy-to-let investors are turning to bridging as “buy-to-let” lending has contracted.
The lender said gross lending in the sector is forecast to hit £1.5bn by end of 2012, after loan volume rose 74% year-on-year, but the data does not include undocumented private equity investment.
“With the high-street unable to cater for demand, more investors have turned to bridging loans to fund their projects. Bridging lenders are plugging the funding gap left by high-street lenders,” said West One.
The data suggested Q1 gross lending in Q1 2012 was £382m, 95% higher than in the first quarter of 2011, and 30% higher than the previous quarter.
The average bridging loan size rose from £342,000 in the first quarter of 2011 to £412,000 in Q1 2012, an increase of over 20%, reflecting the bigger projects being tackled by property investors.
The data suggests the average monthly bridging rate fell from 1.41% in Q4 2011 to 1.38%. Product Loan-to-values (LTVs) have fallen slightly from 50.2% in Q4 last year to 49.3%.
Duncan Kreeger, chairman of West One Loans, said: “The high street simply can’t cater for the high demand from property investors for residential loans. It has created a huge gap between supply and demand that could become even wider if the economy fails to recover with any conviction.”
“Investors have become steadily more disillusioned with the restricted choice of finance on offer from banks and building societies. This may be just the start of a more pronounced shift in the way property investors choose to fund their projects,” he said.
David Whittaker, managing director of buy-to-let specialist Mortgages for Business said a market that came off £9bn in 2010 to achieve £14.4bn in 2011 and a possible £16-17bn this year doesn’t strike him as a market that isn’t servicing demand.
“Whether traditional buy-to-let lenders are offering diverse enough products is almost a moot point as the market has diversified substantially since 2010. Whether that is keeping up with buy-to-let landlords expectations is another thing entirely,” he said.
But bridging lenders do continue to pick up niche cases, like development financing, the high street can’t accommodate, he added.
James Chidgey, Nationwide’s senior manager, corporate accounts, raised The Mortgage Work’s light refurbishment product offering investors a three-month redecoration window, said it had no plans to loosen its criteria.
“What we could do with is more lender support in the buy-to-let market because there’s no sign of this demand weakening,” he said.
Meanwhile, on sector funding, Mark Abrahams (pictured), West One’s CEO said the sector has seen a “seismic shift” in the way people are investing in the bridging.
“Most traditional asset classes are yielding significantly lower returns than they were before the 2008 downturn. We’ve yet to see them recover with any conviction. This is encouraging more private investors to invest directly in alternative assets like bridging.”
The unregulated bridging sector, feared to potentially be the next mis-selling scandal for regulated residential mortgage brokers if a loan is arranged without a clear exit, the comparatively high monthly interest rates charged and the rewarding broker fees.
The FSA has already warned the sector is under scrutiny.
Chidgey said: “Brokers inexperienced in bridging have to be very careful to make sure their client has an out. This is an expensive form of credit. Right for the right people, but still expensive.”
Precise Mortgages agreed a distribution deal with seven mortgage networks, including Sesame and Personal Touch, in April in a bid to “clean up the bridging sector.”
