Re-bridging and investment deals increased as a proportion of the market while interest rates also rose.
According to the latest MT Finance bridging trends report, £79.4m worth of bridging deals were completed from May to July 2020, down from £184m in the same period of 2019 and from £123m in Q1 2020.
As a result, in the six months to the end of June 2020, bridging volumes declined by £168m to £202m, compared to £370m in the first half of 2019.
The lender takes data from 10 packager firms to form its analysis of the state of the market and contributors said the drop was “inevitable”.
Rates and reasons
Bridging interest rates rose during the period, perhaps reflecting the increased risk and more limited product availability during the period.
The average weighted monthly interest rate in Q2 2020 increased to 0.85 per cent – up from 0.8 per cent in Q1 and 0.75 per cent in Q4 2019.
This is the highest average monthly interest rate recorded in Bridging Trends data since Q3 2016.
Investment purchase and re-bridging saw notable increases as the reason for borrowers accessing bridging finance.
A quarter of deals were completed for investment, up from 20 per cent in Q1, while 13 per cent were as rebridges, up from eight per cent between January and March.
In contrast, chain breaks made up just one in 10 bridging deals, down from 20 per cent in Q1, while heavy refurbishment dropped from 13 per cent of transactions to 10 per cent.
Despite operational difficulties, the average completion time on a bridging loan application has been consistent over the last four quarters and remained at 50 days during Q2.
Average loan to value (LTV) levels decreased to 48.8 per cent in Q2, from 51 per cent in Q1 2020 and 54.1 per cent in Q4 2019.
“This could be attributed to the number of bridging lenders removing high LTV products from their product ranges during the lockdown period,” MTF noted.
MT Finance commercial director Gareth Lewis said: “We are presently living through unprecedented levels of uncertainty and the drop in bridging transactions is not wholly unexpected, given the restrictions on conducting physical valuations until May, servicing challenges, and significant uncertainty around any possible economic downturn.
“MT Finance has seen a definite increase in second charge loans as business owners continue to invest to help support their business,” he added.
Sirius Finance associate Craig Booth added: “We cannot be surprised at decreased lending and a higher rate average, the first inevitable and the second due to changes in risk.
“What is surprising is the re-bridging of a bridging loan increase. Supporting existing clients should be just as important as new business in challenging markets.”