Bridging lending down slightly from Q4
Gross annual bridging lending reached £5.5bn in Q1 this year, down slightly by 2.6% from the record of £5.7bn in Q4 2018, the West One Bridging Index has found.
Although the first three months of 2019 delivered a modest fall against that record-breaking quarter, West One’s estimates showed that average loan size increased 11% through the quarter, compared to Q4 2018, the highest performing quarter of last year.
Stephen Wasserman, managing director, West One Loans, said: “We’ve seen robust growth in our bridging service this year, which includes completing one of our largest loans. We provided a £20m first charge bridging facility against a high value site in a prime London location.
“We were able to complete the deal in just 18 working days; thanks to the quality of the deal, our ongoing relationship with the client and the slick service of our Premier Loan Team.
“The bespoke service they provide for our high net worth clients with more complex borrowing needs is second to none
“It is positive to see the average loan size increase, too. With the ASTL reporting a record number of applications among their membership, it’s clear that bridging finance is still very much on an upward trajectory.”
There has been plenty of discussion in the media during Q1 about business models of bridging lenders – and the stability of their funding lines – no doubt due to the widely reported fate of Amicus and a few other high-profile lenders who eventually left the market.
This reduced competition could have had the potential to drive prices up, but in fact the competitive intensity of the market has been maintained.
This is, in part, due to the wealth of new bridging products that have entered the market.
With a relatively static property transaction market and – more importantly – house prices being static or showing minimal growth, property developers are increasingly keen to hold out for the ‘right’ price.
To aid this, bridging lenders are creating new ‘development exit’ loans to help builders transition from repaying their development facility, to obtaining the sales value they want to achieve.
West One has also seen increasing demand from borrowers for bridge-to-let products. Savvy landlords are looking for other ways to achieve high returns in the face of tax relief changes and affordability stress tests.
Landlords and developers are seeking out distressed and derelict properties that are in need of repair and – using bridge-to-let – bringing them up to standard and adding them to their rental portfolio.
All this means that the options available to borrowers are increasing.
Bridging finance interest rates have fallen to among their lowest levels – with a Q1 average of 0.95% per month – and a number of factors are contributing to this.
There has been a stable Bank of England base rate for over two quarters, with many in the market predicting that the bank is unlikely to raise interest rates again before the end of 2019.
Furthermore, the competitive intensity of the market has been maintained – despite some high-profile lenders leaving the market in the early part of 2019 – through clever product development in ‘development exit’ and bridge-to-let solutions.
Thirdly, there is continued interest in the sector from new entrants, and well-funded players in the market have been able to maintain attractive rates.
Lastly, the fall in rates is also driven by the increase in regulated bridging that is priced at a lower rate of interest.
This has meant good value for borrowers, resulting in the continuing interest and performance of the sector.