According to Bridging Trends’ latest report, the value of bridging loans transacted in Q3 was up from £146.5m in Q2 and a 65 per cent increase from the same period last year.
The report added that purchase of investment property was the most popular use of bridging loan for the second quarter in a row, accounting for 28 per cent of transactions.
Traditional chain break made up 13 per cent of bridging loan use, down 20 per cent on the previous quarter, and auction finance grew from four per cent in Q2 to 11 per cent in Q3.
The average monthly interest rate was 0.72 per cent, down from 0.79 per cent in Q3, whilst the average term contracted slightly from 12 months in Q2 months to 11 months in Q3.
Dale Jannels, managing director of Impact Specialist Finance, said: “These figures show that bridging finance is now a better understood product for many brokers and they have much more confidence in recommending this solution to their customers.
“The stamp duty holiday has helped bridging finance to be more widely accepted by the mainstream industry as a need to meet speed demands, but investors with the intention to renovate have also been at the forefront of recent requests.”
First charge bridging loans made up the majority of the market at 90 per cent, unchanged from the previous quarter, and regulated bridging loans fell from 41.6 per cent in Q2 to 37.7 per cent in Q2.
According to the report this is the fifth consecutive quarter of falling regulated bridging loans.
Chris Oatway, director of LDNfinance, said: “Regulated transactions accounting for over a third of the market stands out when you consider the limited number of bridging lenders who are able to transact regulated business and shows there’s opportunity there for more lenders to enter this market.”
Loan to value highest level since reporting started
The average loan to value (LTV) for bridging loans was pegged at 60.2 per cent, up from 54.9 per cent in Q2. This is the highest LTV recorded since the report launched in 2015 which indicates borrowers are taking advantage of low rates and exploiting liquidity opportunities, the report explained.
Chris Whitney, head of specialist lending at Enness Global, said: “LTVs are up with borrowers possibly taking advantage of increasingly cheaper money in the light of reports that mortgage rates in general are heading upwards imminently.”
He added: “However, with continuing competition and even more new entrants in the short-term lending space, it will be interesting to see how that pans out with so many lenders looking to increase market share in a seemingly very liquid environment. However, at 60 per cent LTV I think we are still seeing prudent levels of borrowing by people and responsible lending from the funders.”
Oatway said: “It surprises me that the average LTV is at record high levels at just 60 per cent LTV. In general, we have seen considerable demand for higher leverage deals at 70 to 75 per cent LTV, where clients keep as much equity in their back pockets for future investments.”
Processing times reflect increased volumes
The report added that processing times for bridging loans were estimated at 53 days, which is up from 47 days in Q2.
Whitney said: “I was not surprised to see processing times up. With increased volumes I think we have seen things take longer, with many lenders struggling to recruit good underwriters and valuers stretched to the limit. With the highest use of funds being for investment purchase I think it really shows how much confidence people have in UK real estate.”
The report collates bridging loan completions from Adapt Finance, Brightstar Financial, Capital B, Clever Lending, Complete FS, Enness Global, Finanta, Impact Specialist Finance, LDNfinance, Optimum Commercial, Sirius Group, and UK Property Finance.