Bridging lending surges in 2021 as stamp duty holiday drives market

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bridging trends

Some £626.7 million of bridging loans were transacted by Bridging Trends contributors in 2021, a 38% increase on the previous year (£455m).

The year saw consistent levels of lending from contributors across three of the quarters (Q1 £144.5, Q2 £146.5 and Q4 £145.4) with volume peaking in Q3 2021 to £190.24m – a surge driven by the strong housing market activity as buyers attempted to take advantage of the stamp duty holiday before it ended.

Bridging Trends combines bridging loan completions from several specialist finance packagers operating within the UK bridging market.

Regulated bridging loans accounted for an average of 40.8% of all contributor transactions in 2021.

With demand for regulated bridging highest in the first half of the year at 47.7% in Q1 and 41.6% in Q2, as homeowners rushed to complete before the end of the Stamp Duty Holiday Scheme at the end of June, before falling to 37.7% in Q3 and 36% in Q4.

Second-charge bridging loans accounted for 15% of total contributor transactions in 2021, down from 23% in 2020. This is the lowest annual figure recorded for second charge bridging loans since Bridging Trends launched in 2015.

Encouragingly, the average monthly interest rate in 2021 fell to 0.76% from 0.79% in 2020. While the average loan-to-value level hit a record high in 2021 at 56.9% – up from 50.7% in 2020, 52.9% in 2019, and 54.6% in 2018.

Funding an investment purchase was the most popular reason for borrowers taking out a bridging loan in 2021, accounting for 25% of all contributor completions, up from 22% in 2020.

Funding a chain-break was the second most popular use for bridging finance in 2021 at 18% of all lending, up from 17% in the previous year.

The data highlights how bridging finance continues to be an attractive proposition to buyers looking to save their delayed property purchases.

The average loan term in 2021 was 12 months, while the average completion time on a bridging loan increased to 52 days, up from 50 days in 2020.

The top criteria search made by bridging finance brokers during 2021 was ‘maximum LTV,’ according to data supplied by Knowledge Bank. Followed by ‘regulated bridging’ and ‘minimum loan amount.’ This further indicates the growing demand for higher LTV products.

Dale Jannels, Managing Director, impact Specialist Finance comments:

“The full effects of the stamp duty holiday appear loud and clear in this latest set of Bridging Trends data, and it feels like a watershed moment for the bridging finance market.

With it still being a sellers’ market in many parts of the UK, I expect regulated bridging to continue to be popular throughout 2022 and this is being mirrored in our business currently.

With so much competition between lenders in the bridging finance space, the options now available to brokers and their customers is unrivalled which is pushing up LTVs and reducing rates, so it’s never been a better time to use such a facility either for investment refurbishment purposes or to fund chain breaks.”

Joshua Elash, founding director, MT Finance comments:

“While the year-end data for 2021 shows a positive and steady recovery in the demand for specialist lending following a challenging 2020, gross lending figures for the year remained significantly down on pre-pandemic 2019.

As we move forward into 2022, we expect gross lending figures to fully recover and surpass the 2019 gross figures as more and more investors return to the market with a view to taking early advantage of the anticipated impact inflationary pressures will have on asset prices.

Indeed, we note that “investment purchase” is again the single largest demand driver for bridging finance.

The industry is otherwise in excellent health and although “maximum LTV” is reported as being the top-rated criteria search by Knowledge Bank, it is noted that the average reported LTV of loans in the year sits comfortably below the 60% mark.”

Chris Oatway, director, LDNfinance comments:

“In Q4 2021 we found there to be a number of lengthy solicitor delays across transactions in the market, so it’s not surprising we’re seeing that ‘funding a chain-break’ was a popular reason for bridging finance.

Despite this, we have seen a strong start to 2022 and it’s promising to see that gross lending from contributors was up by almost 40% in 2021 against 2020.

Based on the enquiry volumes we received in January, we anticipate a good year ahead.”

Chris Whitney, head of specialist lending, Enness Global comments:

“As a contributor to the data it is always interesting to see what the finished report looks like and whether it reflects our own individual experiences on the ground, and the 2021 report definitely does.

Probably our busiest year ever in the short-term lending space, so no real surprise to see the 38% increase although that is still an amazing increase.

Average interest rates falling was expected as we saw new entrants and well-established players hustling for market share.

This is probably a trend that will continue with the market feeling very liquid despite inflationary pressures.

Perhaps in part fuelling demand as falling cost of funds makes more projects viable for the borrowers and if money is priced well enough people will take more of it, hence the higher LTVs we have seen.

The continued decline in second charge loans is slightly surprising. However, we have lost some lenders in this sector, and no one really seems to have filled the gap.

I think there is definitely room for some product and criteria innovation here.”