Regulated bridging loans on the rise
The average monthly interest rate on a bridging loan fell to 0.74% in the first quarter of 2019, down from 0.80% in Q4 2018, the lowest rate ever recorded by Bridging Trends since its launch in 2015.
This drop is driven mainly by the boost in regulated lending over the past three months. Regulated bridging loans increased for the first time since Q1 2018, with the number of regulated loans conducted by contributors increasing to 38.3% in Q1 2019, compared to 31.6% during Q4 2018.
The spike in regulated bridging activity also translated into lower LTVs, with average LTV levels in Q1 2019 decreasing to 51.3%, from 57% in the previous quarter.
Bridging loan volume transacted by contributors hit £185.32 million in Q1 2019, 8% lower than the £201.57 million lent by contributors in Q4 2018 but 20% higher than a year earlier (£154.02m). This comes as two new contributors join Bridging Trends- specialist finance packagers, Impact Specialist Finance (previously AToM), and UK Property Finance.
The most popular reason for borrowers taking out a bridging loan in Q1 2019 was for the purchase of an investment property, as property investors continued to purchase property despite a backdrop of uncertainty surrounding Brexit.
The second most popular reason was for chain- breaking purposes, accounting for 19% of all lending in the first quarter.
First legal charge lending dropped marginally to 81.7% of all loans during Q1 2019, from 82% in the previous quarter.
The average term of a bridging loan remained at 12 months during the first quarter. A completion time of 40 days during Q1 2019 was lower than an average completion time of 42 days during Q4 2018.
Bridging Trends is a quarterly publication grouping together the figures from short-term loan lender, MT Finance, and specialist finance brokers: Brightstar Financial, Clever Lending, Complete FS, Enness, Impact Specialist Finance, Positive Lending, Pure Commercial Finance, Y3S and UK Property Finance, to monitor the general trends in the UK bridging finance market.
Key findings from Bridging Trends Q1 2019:
- Monthly interest rates fall to lowest level
- Regulated bridging transactions increase for first time in a year
- Investment property purchase most popular reason for taking out a bridging loan
Chris Whitney, Head of Specialist Lending at Enness comments:
“I don’t think it comes as a surprise that interest rates are still under downward pressure as some of the industry’s more mature lenders seek out cheaper costs of funds to stave off the newer entrants- which is good news for consumers.
As rates come down, short-term loans become a financially viable way of financing for more and more situations so actually increases business into the sector in my view.
“It’s still surprising where in a market where some lenders seem to be fighting for market share by increasing LTV’s that the average LTV in the index is still only 51%.
In terms of volume I think we see more demand for higher LTV’s across the board, but the average LTV is possibly dragged down by larger transactions at low levels i.e. we have just completed a £5m facility against a £26m asset.
“Surprised to see that only 8% of the loans written were for business purposes which we see a lot of demand for.
Our buy-to-let team have reported that there has recently been a drop in service standards from buy to let lenders and loans are taking much longer to be agreed and complete.
Borrowers are generally getting what they want but just not quickly enough which I think is reflected in the report’s reasons for bridging.
“40 days average completion time has shown a fall but still surprisingly long and, in my experience, outside of most borrowers needs and expectations. The industry must have a hardcore base of borrowers who like to plan ahead, and I don’t think any of them are mine!”
Gareth Lewis, pictured, Commercial Director at MT Finance comments:
“Property investors are continuing to turn to bridging finance as a support tool, as reflected in the 22% utilising the product for investment purposes.
“With highly professional specialist lenders offering flexible products at competitive rates, bridging finance has become an attractive proposition to those property investors who are looking to expand their portfolio and need certainty when conducting their business and who often need to move swiftly to capitalise on an opportunity.”
Dale Jannels, Managing Director of Impact Specialist Finance comments:
“House buying and owning can become complex, especially in the current climates. As a result, we are seeing an increasing demand for short-term finance to help meet completion deadlines or to assist funding specialist finance projects.”