Volume of bridging lending down £278m annually
The total volume of bridging lending transacted by contributors fell by £278m in 2020, according to MT Finance’s Bridging Trends.
Over 2020, £455m worth of bridging loans were transacted by Bridging Trends contributors, a 38% decline on 2019.
Breaking down the data, £112.86m in bridging loans was transacted in Q1; however, volumes dropped to £79.4m in the second quarter as lockdown restrictions continued.
Volumes did increase in the second half of the year, to £115.52m in Q3 2020 and £137.22m in Q4 2020.
Historically, a significant portion of bridging loan activity is unregulated, but in 2020 there was a near equal split between regulated and unregulated transactions, according to Bridging Trends.
Regulated bridging transactions accounted for a market share of 49.4% of gross lending in 2020, compared with 39% in 2019, and 36% in 2018.
Furthermore, average monthly interest rates increased in the first quarter of the year to 0.8%, before peaking at 0.85% in Q2.
However, the second half of the year saw a sharp drop in pricing with the average monthly rate falling to 0.78% in Q3 and then 0.72% in the fourth quarter, which represents lowest ever rate recorded by Bridging Trends.
The data also shows that the average loan-to-value (LTV) fell to 50.7% in 2020, down from 52.9% in 2019 and 55.6% in 2018.
Second charge loans accounted for an average of 23% of the market in 2020, up from 20% in 2019 and 17% in 2018.
Looking to Q2, second charge transactions peaked to the highest level recorded, at 26.1% of gross loan volume.
Funding an investment purchase was the most popular reason for obtaining bridging finance in the first three quarters of the year.
In the fourth quarter, however, a traditional chain break was the most popular purpose, accounting for 23% of all transactions.
The average loan term in 2020 was 12 months, the same as in 2019.
The average completion time averaged 50 days, up from 47 days in 2019 and 45 days in 2018.
Gareth Lewis, commercial director at MT Finance, said: “After the first lockdown, we saw the re-emergence of some larger lenders and if you combine this with the stamp duty changes, it is no surprise that there was a stimulus on rates and regulated bridging in the latter part of the year.
“As the vaccine rolls out and we gradually emerge from this lockdown, I believe we will see a new transactional flow from renewed confidence in the economy and businesses re-establishing themselves.”
Dale Jannels, managing director at Impact Specialist Finance, added: “The impact of the pandemic on the bridging sector is shown clearly in Q4’s data, but it also alludes to the activity we are now experiencing, some of which, but not all, is related to the stamp duty holiday deadline.
“It’s clear though that bridging finance is becoming better understood by the wider broker market (not just those in the specialist sector) and there is more confidence about the options it can provide customers, which should mean that 2021 could see a real watershed moment for this type of finance.”