Stamp duty holiday fuels bridging activity in second quarter

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Bridging trends

Landlords and buyers rushed to complete before the stamp duty holiday started tapering off at the end of the second quarter, according to the latest Bridging Trends data.

Key data points from Bridging Trends Q2 2021:

  • Bridging loan market continues to stabilise
  • Funding an investment purchase returns as most popular use
  • First charges up as buyers rush to complete purchases
  • Average processing times hit two-year low

Funding the purchase of an investment property returned as the most popular use for bridging finance in the second quarter, at 24 per cent of all contributor transactions – up from 19 per cent in Q1.

The latest figures from Bridging Trends contributors highlight how property investors and landlords took advantage of tenant demand and the stamp duty holiday deadline at the end of Q2 to expand their portfolios.

First-charge bridging loan applications also soared in the second quarter, again motivated by the desire to take advantage of the full stamp duty holiday. They accounted for 90 per cent of total market volume in Q2, up from 77.8 per cent in Q1.

A traditional chain break was the second most popular use of bridging finance at 20 per cent of transactions, a decrease from 21 per cent in Q1.

Meanwhile, demand for regulated refinance saw the biggest change in Q2, dropping to 5 per cent of contributor transactions from 13 per cent in the previous quarter.

The bridging loan market held steady in the second quarter at £146.52 million, a nominal percentage rise on the previous quarter (£144.51m), contributors reported.

However, regulated bridging loans transacted by contributors dipped in Q2 – falling from 47.7 per cent to 41.6 per cent.

The average monthly interest rate in Q2 2021 was 0.79 per cent, marginally higher than in Q1 2021 (0.74 per cent).

Encouragingly, average loan-to-value (LTV) levels decreased to 54.9 per cent, from 55.2 per cent LTV in Q1, suggesting borrowers are not overstretching themselves.

The average term of a bridging loan was once again 12 months. Bridging loan application processing times reduced significantly as brokers, lenders, surveyors, and solicitor firms all battled to complete property deals before the stamp duty holiday started to taper off.

The average completion time on a bridging loan application in the second quarter reduced to 47 days, from a record 53 days in the first quarter. This is the lowest figure recorded since Q2 2019 (44 days).

According to data supplied by Knowledge Bank, the top criteria search made by bridging finance brokers during the second quarter was “regulated bridging”, previously second in Q1. This was followed by “max LTV” and “minimum loan amount.”

Chris Whitney, Head of Specialist Lending at Enness, comments:

“It looks like we have reached quite a stable platform over the last two quarters. Any previous pandemic worries seem to have been put to one side with the stamp duty holiday deadline creating a frenzy of activity.

The higher level of investment purchases shows confidence in the UK property market is strong.

I am slightly surprised that lending volumes weren’t higher. The market certainly felt very busy as we struggled to get valuers out in a timely manner due to volumes and many a solicitor was having to burn the midnight oil to keep up with demand.

Nice to see the time it takes to draw a loan heading in the right direction albeit was that again stamp duty deadline linked? It will be interesting to see where that is at in the next quarter.”

Matthew Corker, Operations Director at Knowledge Bank comments:

“We’ve seen a dramatic rise in searches across our bridging section throughout this quarter.

‘Regulated bridging’ has consistently appeared as one of the most searched terms on our system throughout 2021, holding the top spot in April, May and June, likely due to buyers wanting to secure their onward purchase before the end of the stamp duty holiday.

Interestingly, we’ve also seen a general rise in search numbers in more traditional bridging categories, suggesting that the usual summer lull may not be as pronounced this year.”

Gareth Lewis, commercial director at MT Finance comments:

“As purchases would have been at the top of people’s minds due to the stamp duty saving, it’s no surprise to see that first-charge lending has significantly increased its share of transactional volumes.

It will be interesting to see if this percentage decreases in the coming months as consumers look to raise finance out of existing properties to fund further property acquisitions or businesses.”