refurbishment
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Refurbishment most popular use for bridging in Q2

Funding refurbishments was the most popular reason for obtaining bridging finance in Q2 2018, the latest Bridging Trends data has found.

Just over a third (34%) of all lending in the second quarter of 2018 was for refurbishment purposes, up from 18% during the first quarter of 2018, as borrowers sought to maximise the value of their existing assets.

This is the second time refurbishments were the most popular purpose since Bridging Trends launched in April 2015  – the previous time was during the same quarter last year.

Gareth Lewis, commercial director at mtf, said: “The new additions to Bridging Trends has given us a better spread of data reflecting a truer market commentary, this has been seen with the decrease in the regulated figure.

“Unsurprising to see that refurbishment is the most popular purpose, especially given more property investors are looking to add value to property to help improve yield and capital value.”

Investors are evidently opting for fast and flexible bridging loans to make improvements to properties and bolster yields against a backdrop of legislation that has made it tougher to buy new properties. At the same time mainstream banks continue to reign in lending.

Consequently, bridging loans for mortgage delays and auction purchases were down on the previous quarter, falling by 4% and 13%, respectively.

Bridging loan volume transacted by contributors hit £197.94m in Q2 2018, an increase of £43.9m on the previous quarter. This is the highest figure to date and comes as three new contributors joined Bridging Trends: Complete FS, Finance 4 Business and Pure Commercial Finance.

Regulated bridging loans fell to the lowest level since 2015, coming in at 36.8% of lending in Q2, from 43.7% in Q1. However, second charge lending increased to 19.1% of all loans during Q2, up from 16.3%.

Chris Whitney, head of specialist lending at Enness, said: “[I’m] slightly surprised to see regulated loans down so much as we still see a lot of transactions where borrowers are taking advantage of these refurbishment loans on their own homes and then refinancing them out with a term loan once works are completed and value added.

“Similarly, second charge lending still looking strong as borrowers want to utilise equity in their property assets without disturbing the first charge debt which is often very good value so when blended with a second charge rate is still attractive overall on a short-term basis.”

Average LTV levels increased by 7.8% in the second quarter to 56.9%, whilst the average monthly interest rate remained at 0.83% for the third consecutive quarter.

Turnaround times were quicker in the second quarter, as the average completion time on a bridging loan application decreased by five days in Q2 2018, to 43 days. The average term of a bridging loan in the second quarter remained at 11 months.

Paul McGonigle, chief executive of Positive Lending, said: “Regulated bridging transactions for us were high in Q2, so it’s a surprise to see such a significant decrease.

“What was evident though and as the data suggests, is that refurbishment was definitely the key reason for unregulated borrowing during the period.

“Now is the time for a proper bridge-to-let product to support these refurb deals. Lenders should look to fine tune their offering- with one underwriter, not two, so that property investors and developers can access the finance they need, with speed and with minimum fuss.”

Dave Fathers, director, sales at Finance4Business, said: “As the competition remains strong amongst the bridging lenders, with new entrants coming through and others fighting for a larger marker share, we are seeing a steady decrease in the average monthly interest rates when looking at each quarter-on-quarter which is great news for our clients.

“The specialist market is very well established and with borrowing interest costs reducing, property traders are turning to this type of finance more than ever before.

“We are half way through Q3 now and we are set to break all records again, we are not seeing any let up at the moment, but we are experiencing slower-than-average completion timeframes and we are simply putting this down to professional 3rd party capacities being stretched along with clients being better prepared and needing the ‘rapid bridging completion’ less and less.”

Source: Mortgage Introducer

base rate
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Bridging rates won’t rise after base rate increase

The Bank of England’s decision to raise the base rate from 0.5 to 0.75% is not expected to affect short-term lenders, Benson Hersch, chief executive of the ASTL, predicted.

The Monetary Policy Committee voted unanimously to increase the base rate.

Benson said: “Today’s announcement that interest rates are rising will as expected have a major impact on longer-term lenders, as they may feel compelled to raise rates.

“This will affect exit routes for short term loans, but unless there is an expectation of further increases in the medium term, I don’t expect rate rises to affect short term lenders.”

Alan Dring, consultant at Hope Capital, partially agreed, saying he didn’t expect an immediate reaction either.

He said: “The rate rise is not totally unexpected of course. It’s a reflection the Bank of England sees the economy being in a better state, which is encouraging.

“It will eventually filter through one way or another. There won’t be an immediate reaction. At the moment it’s just business as usual and the sector will adjust as it feels it needs to.

“Most of the funding is pretty stable at the moment. There’s no chance of a radical increase, just maybe a couple of the rates at the bottom end of the scale will be adjusted because they are maybe not as profitable.”

Jonathan Sealey, chief executive and founder of Hope Capital, also agreed and said that said that bridging lenders just need to be aware of any change in their cost of funds affecting their exit routes.

He said: “The 0.25% rise will have a minimal effect on specialist borrowers. Cost of funds will not have risen for most lenders, certainly not for private lenders, and so bridging and other specialist rates are likely to remain the same, affected more by competition than by any decision by the Bank of England.

“More institutionally funded lenders may notice a slight rise in their cost of funds but this is likely to take some time to trickle through to the borrower.

“The key thing that borrowers of short term loans will need to be aware of is that if may affect the affordability of their exit routes if their plan had been to move off their bridging rate onto a long term loan with a mainstream lender who now increases their rates.”

James Allen, head of alternative investment at Walker Crips, added: “For bridging lenders to be sensitive to the base rate, rates would need to be coming up to 5% or 5.5%, which is a long way away. I don’t think rates will rise to 5% for another 10 years.”

Jonathan Samuels, chief executive, Octane Capital, questioned the BoE’s decision.

He said: “While a quarter per cent increase won’t take home finances to breaking point, it will add to the pressure at a time when confidence is already low.

“The Bank of England’s hope is that this hike will be a shot across the bows to overly indebted consumers, and there is some logic in that. But the timing of this rate rise, coming in the shadow of outright politico-economic uncertainty, is less logical.

“Why rock the boat just as we approach the business end of Brexit, all the more so given that inflation is not significantly above target? Thankfully, many households have remortgaged onto fixed rates to protect themselves against rate rises in the medium term.”

Paresh Raja, chief executive of bridging lender Market Financial Solutions, warned how it will affect homeowners with a variable or tracker rate.

He said: “For those homeowners paying off variable or tracker mortgages, they will now be faced with an increase in their monthly payments, which could place considerable strain on households.

“What’s more, this rate rise will mean that banks will be more cautious when it comes to approving mortgage applications.

“The stringent lending measures that have been imposed since the onset of the financial crisis a decade ago have made it tough for people to access finance from high street lenders, and this latest rise could make it more difficult for people to successfully acquire a mortgage from a bank due to the increase in monthly payments they will now face.”

Source: Mortgage Introducer