Data from the MTF Bridging Trends showed 34% of all bridging lending in the second quarter of 2018 was for refurbishment purposes, up from 18% during the first quarter of 2018.
The findings support the views of TBMC managing director Jane Simpson who told Specialist Lending Solutions there was a growing gap in the market to be met by lenders.
However, in its broker sentiment survey earlier this summer, MTF found refurbishment was the second most popular source of bridging at 27% of cases, just behind development projects (33%).
It is the second time refurbishments were the most popular purpose since MTF launched its quarterly Bridging Trends report in April 2015 – the previous time was the same quarter last year.
The lender noted that investors were “evidently opting for fast and flexible bridging loans to make improvements to properties and bolster yields against a backdrop of legislation that has made it tougher to buy new properties”.
“At the same time mainstream banks continue to reign in lending,” it added.
Unregulated market dominates
MTF added data from three more packagers for the first time this quarter – Complete FS, Finance 4 Business and Pure Commercial Finance, in addition to previous contributors Brightstar Financial, Enness and Positive Lending – this took its market spread to £197m of lending.
Perhaps surprisingly the market was dominated by unregulated lending over the period with regulated bridging falling to the lowest level since 2015 at 36.8% of lending in Q2, from 43.7% in Q1.
Second charge lending increased to 19.1% of all loans during Q2, up from 16.3%.
Meanwhile average loan-to-value (LTV) levels increased by 7.8% in the second quarter to 56.9%, while the average monthly interest rate remained at 0.83% for the third consecutive quarter.
Turnaround times were quicker in the second quarter, as the average completion time on a bridging loan application decreased by five days in Q2 2018, to 43 days.
The average term of a bridging loan in the second quarter remained at 11 months.
Now is the time for bridge-to-let
MTF commercial director Gareth Lewis said the new additions had given it a better spread of data reflecting a truer market commentary, hence the decrease in regulated lending.
“It was unsurprising to see that refurbishment is the most popular purpose, especially given more property investors are looking to add value to property to help improve yield and capital value,” he added.
This was echoed by the contributors who noted that they did not think many people would be surprised to see refurbishment loans taking centre stage this month.
Positive Lending chief executive Paul McGonigle urged lenders to take action as refurbishment was definitely the key reason for unregulated borrowing during the period.
“Now is the time for a proper bridge-to-let product to support these refurb deals,” he said.
“Lenders should look to fine tune their offering with one underwriter, not two, so that property investors and developers can access the finance they need, with speed and with minimum fuss.”
Enness head of specialist lending Chris Whitney said he was slightly surprised to see regulated loans down so much as the products were still popular at the brokerage.
“Similarly, second charge lending is still looking strong as borrowers want to utilise equity in their property assets without disturbing the first charge debt which is often very good value, so when blended with a second charge rate it is still attractive overall on a short-term basis,” he said.
“While average LTV’s have increased, overall gearing is still very modest which I think is a healthy sign when many pundits are showing concern about rising household debt in the UK.”
Finance4Business director, sales Dave Fathers said the firm had seen a large surge in unregulated applications from clients and brokers alike.
This is “coupled with a lot of the networks giving their appointed representatives (who generally attract a higher level of regulated cases) the opportunity to deal directly with the lender”.
“As the competition remains strong among the bridging lenders, with new entrants coming through and others fighting for a larger marker share, we are seeing a steady decrease in the average monthly interest rates when looking at each quarter on quarter which is great news for our clients.”