Bridging loan volume rose £50.1m (11.5%) to £482.61m in 2016 compared to £432.51m in 2015, according to the latest Bridging Trends data.
Volume rose overall despite a volatile year that saw issuance levels rise and fall against a backdrop of major geopolitical and economic events including Brexit and Trump’s US election win.
The year kicked off to a strong start with £125.35m of bridging loans completed by Bridging Trends contributors in Q1, before cooling off during Q2 to £91.11m, due to uncertainty in the run up to the referendum. Volume picked up again in Q3 rising to £140.49m, before dropping in the fourth quarter to £125.66m.
Volume during the first, second and fourth quarters of 2016 all exceeded levels compared to the same quarters last year, highlighting a strong increase in demand for bridging finance, the data shows.
Bridging Trends is a quarterly publication conducted by bridging lender MTF and a number of the industry’s specialist finance brokers: Brightstar Financial, Enness Private Clients, Positive Lending and SPF Short Term Finance, to offer a general snapshot of the UK bridging loan industry as a whole.
The split between 1st and 2nd legal charge loans remained fairly consistent throughout 2016, with first charge loans accounting for over 82% of the market in all four quarters.
A significant percentage of bridging loan activity was unregulated in 2016 at an average of 55.5% of all deals, although regulated business increased to 44.4% of all deals in 2016 compared to 36.5% in 2015, due to changes in regulation and the introduction of Consumer Buy-To-Let.
Average Loan-To-Value (LTV) ratios were steady throughout the year at around 49%, maintaining responsible lending levels. Interest rates were under constant downward pressure throughout the year, averaging 0.89% in Q1 before rounding off 2016 at an average of 0.78% in Q4, demonstrating how bridging finance has become more affordable.
Mortgage delays were again the most popular reason for taking out a bridging loan in 2016, like in 2015. Pressure on banks, prompted by increased regulation, acted as a bridging finance demand driver. Refurbishment was the second most popular reason for accessing a bridging loan in 2016, according to the data.
Average loan terms remained consistent at 10-11 months throughout 2016. Average completion time averaged 45 days in 2016, up from 40 days in 2015.
Key Data points from Bridging Trends in 2016 are as follows:
- £50.1m more business transacted by contributors
- Average monthly interest rate fell to a new low of 0.78% in Q4
- Lending peaked during Q3 at £140.49m- up from £131.7m during Q3 2015
- First charge loans outperformed second charge loans
- Unregulated loans outperformed regulated loans
Joshua Elash, Director of MTF, comments:
“The final figures for 2016 show strong demand for bridging loans. Interest rates were again under consistent downward pressure throughout the year, as the bridging sector continued to be highly competitive.
“The recent data is interesting as we are certainly witnessing consistency in the key market parameters we are seeking to benchmark.”
Chris Whitney, Head of Specialist Lending at Enness Bridging Finance, comments:
“The bridging finance market has been shrouded in uncertainty throughout 2016. Political issues both in the UK and overseas – including Brexit, the US election and the far right gathering ground in Europe – have led to an increase in activity volumes for specialist lenders in our opinion, as lenders outside this space took their time to evaluate the potential impacts, holding back from lending.
“The fall in average monthly interest rates is a reflection of continued increased competition within the industry – however, it would be more beneficial to see greater innovation within the specialist lending sphere, rather than simply keener pricing.
“It is slightly surprising to see the number of regulated loans among specialist lenders decreasing in Q4, as we are still finding that high street lenders are struggling to come to terms with regulations, suggesting that specialist lenders may pick up these cases. This year, the percentage of regulated business may increase as we are aware of several non-regulated lenders looking to become regulated in 2017, resulting in a potential increase in regulated activity.
“Average loan to value remains at modest levels, indicating that the industry is continuing its responsible lending policies. Furthermore, with the cost of borrowing from the high street at an all-time low, we may see an increase in the number of second charge loans throughout 2017 with borrowers taking whatever they can at very low rates and ‘toping up’ from the specialist lending arena”
Kit Thompson, Director of Short Term Lending at Brightstar Financial comments:
“The bridging Trends data for Q4 and across the whole of 2016 shows that the sector remains strong and is still growing, although growth in 2016 slowed when compared to the previous year’s growth. Against a backdrop of political and economic surprises with Brexit, Trump, Stamp Duty and Tax relief changes, this is encouraging. No surprise that average rates have reduced, with increased competition in the sector, lenders have had to drop pricing to remain competitive and keep market share.
“New entrants continue to join the sector and lenders are awash with cash to lend. Non-regulated bridging transactions will always outstrip regulated and LTVs remained reassuringly comfortable for lenders, promoting sensible lending practise throughout our industry. January has started very strong and we expect another strong growth year for bridging.”
Christopher Borwick, Director of SPF Short Term Finance comments:
“SPF Short Term Finance saw an increase of 1st charge regulated bridging transactions completing in Q4, the majority of these being taken out to save an ongoing purchase of a new main residence. Q4 also saw the beginnings of a mini rate war with low loan to value residential bridging rates being cut to new lows: this has continued into Q1 of 2017.
“Although there are the obvious external factors that may have a bearing on how 2017 unfolds the market remains resilient and we are confident of a good year ahead.”
To see the Bridging Trends 2016 infographic, please visit www.bridgingtrends.com