Bridging lending 'stabilises' in Feb, shows West One Index

This expansion represents a modest 3% lift in gross annual lending since December, showing that growth has stabilised somewhat from the previous year.

The growth in short-term finance has been driven by a number of factors including an uplift in demand for bridge-to-let loans in advance of April’s Stamp Duty surcharge. With property transactions rising 16.1% year-on-year in February,  there has been a surge in demand for bridging finance in order to unblock property chains and raise additional finance.

However, total bridging lending growth was tempered by a month-on-month flattening of construction output in February, down 0.3%   alongside a slight 2%  contraction of the commercial property market. With smaller developers using short-term finance to aid in the completion of projects and specialist finance providers helping fill the post-recession gap in commercial lending, the dip in these markets has had some influence on growth in the short-term finance sector. However these markets should improve following the reduction in Stamp Duty announced in March’s budget.

The size of the average bridging loan has dipped in February, falling to £937,189 from £983,990 in December. This 5% drop was expected after the record high at the end of 2015, but bridging loans continue to be used for significant projects. At the same time the average first charge loan-to-value ratio has also fell slightly, to 47.4%, as the sector continues its commitment to responsible lending.

Average interest rates stayed broadly flat at 1.11%. This marks the eighth consecutive month that interest rates for short-term finance have remain below 1.2%. 

Stephen Wasserman, Managing Director of West One Loans, comments:

“A 3% rise in lending may seem moderate, but that’s relative to some significant recent sector expansion. Moreover, we’ve seen healthy growth continuing in the weeks since February. A major contributor is professionals using bridging as part of their strategy to buy residential properties in need of renovation, improve them and re-sell at a healthy profit. In this case, the flexibility of bridging finance is well-suited to financing such activity. With this group often buying at auction, our experience fits with the surge in auction buying noted. Moreover, we anticipate further growth from this group, favoured by the underlying lack of supply of new homes. Recently released DCLG figures showed that housing stock growth of 0.73% lagged population growth. That means renovating undesirable properties will continue to be a profitable and attractive business, from which bridging will benefit.

“DCLG data also showed a greater rise in private rented housing over owner-occupied. We’ve also observed strong growth in bridging to acquire properties, often at auction, with a view to buy-to-let refinancing. In spite of fears that Stamp Duty changes would dampen both the BTL and linked bridging markets, we’ve seen that growth continue both before and after the deadline. This is because the majority of those who use bridging before BTL refinancing are professional landlords, building full-blown businesses. They will continue to do so, as 3% makes little difference in the long run. Coupled with the fundamentals of housing supply and affordability, there’s still a major opportunity for those who can access capital, to build private rented businesses. Bridging will continue to be their financing of choice.”