Richard Deacon, sales director at Masthaven, looks at trends in the bridging loan sector
Despite the many uncertainties of the past two years, bridging loans appear to have fared admirably in 2017, with lending having now increased beyond pre-EU referendum highs. But what are the reasons for the bridging industry’s continued strength? We examine the trends visible in Q3 of 2017 to find out.
Strong performance
2017 took bridging loans into record- breaking territory. Total gross lending in Q2 was £150.07 million – the highest level ever at £31.28 million more than Q1. While this decreased to £142.65 million in Q3, it is up 2% on the same quarter last year and so does demonstrate bridging’s current strength.
The bridging industry may have withstood the uncertainty facing the wider property and finance markets as a result of the ongoing Brexit process and interest rate rise, but what prompted these increases?
Bridging motives
We’ve seen a slight shift in the reasons for borrowers seeking bridging loans, which may provide insight into bridging’s strength. In Q3, the main uses for bridging loans were:
- 31% for mortgage delays (25% in Q2)
- 23% for refurbishment (27% in Q2)
- 13% for business purposes (11% in Q2)
- 12% for re-bridging (13% in Q2)
- 11% for miscellaneous reasons (15% in Q2)
- 10% for auction purchase (9% in Q2)
Interestingly, in Q2 refurbishment overtook mortgage delays as the most popular reason for a bridging loan for the first time since Q1 of 2015. Although the status quo of mortgage delays being the primary reason has since returned, this could be due to seasonal effects – property owners may be less likely to commence renovation or refurbishment projects during the inclement weather of the UK’s winter months.
This rise in refurbishment lending could indicate that borrowers are increasingly interested in improving existing properties– an idea reinforced by lowering mortgage approval rates nationwide; October saw new home mortgage approvals reach their lowest point since September 2016, immediately following the EU referendum.
Average loan to value (LTV) has also increased from 45.4% in Q2 to 49.6% in Q3. Reasons for this change might include landlords using bridging finance as a fast and flexible option to renovate their properties, but could also be a side effect of the increasing difficulty in securing a mortgage.
Regulated vs unregulated transactions
Both Q2 and Q3 saw an increasing number of unregulated transactions as opposed to regulated transactions – regulated transactions accounted for 42.9% of bridging loans during Q3, while unregulated represented 57.1% of transactions.
Unregulated transactions are often processed at a quicker rate, yet the average processing time in Q3 crept up by four days on when compared to Q2, giving an average completion time of 43 days. Average completion time did remain a week faster than in Q1, however, demonstrating that the industry is maintaining an improved standard of service on the whole.
Looking ahead
So far this year, the bridging industry appears to be enjoying steadily improving performance from 2016, but it may be wise to maintain perspective. UK finance and property markets face continued uncertainty from interest rate rises and the Brexit process.
At Masthaven, we recognise that a changing world requires an increasingly diverse range of short-term lending options in order to fulfil the needs of a wide range of clients. Visit masthaven.co.uk to understand how we can help brokers service their clients effectively.