Bridging loans have become increasingly popular amongst property investors keen to expand their portfolios, new data has revealed.
The latest ‘Bridging Trends’ report revealed for the second consecutive quarter, this type of finance was most commonly used to purchase investment property.
According to the data it contributed to 25% of all lending during Q2 2019, up from 22% in the first quarter of the year.
According to the businesses compiling the data, bridging finance was being used by property investors who needed to move swiftly to capitalise on opportunities while prices were low.
Kit Thompson, director of short term lending and development at Brightstar Financial, said: “There continue to be opportunities for property investors to grow and diversify their portfolio and bridging finance provides a fast and flexible form of funding that enables them to leverage their capital and make the most of these opportunities.
“This is a trend we expect to see continuing well into the future.”
Other uses for bridging
According to the report, a traditional chain break was the second most popular use for bridging finance in the second quarter – this contributed to 18% of lending.
Borrowers were also using bridging loans for business purposes – this area of lending went up from 12% in the first quarter to 18% in Q2.
Dale Jannels, MD, at impact Specialist Finance, said: “I’m not surprised that chain break finance was the second most popular reason for obtaining bridging finance in the last quarter.
“We’re in uncertain times and this uncertainty transfers into property transactions also.
“Customers are also being gazumped and looking for short-term finance assistance to speed up the purchase of their dream property. Add in the complexity of many property transactions and the high-street lender will say no, yet short-term finance might get them over the initial line.”
Impact Specialist Finance and Brighstar Financial are among a number of businesses which provide figures for the Bridging Trends report. The others are MT Finance, Clever Lending, Complete FS, Enness, Positive Lending, Pure Commercial Finance, Y3S, and UK Property Finance.
Lending figures
According to the report bridging growth stabilised in the second quarter, with bridging loan volume transacted by contributors hitting £184.82 million, a £500,000 decrease on the previous quarter (£185.32m).
Average LTV levels increased by 1.55% in the second quarter to 52.85%. The average monthly interest rate in Q2 was 0.79%, representing an increase of 0.05% on the previous quarter.
The number of regulated loans transacted by Bridging Trends contributors decreased from 38.3% in Q1 2019 to 37.5% in Q2 2019.
Second charge loan transactions, meanwhile, saw a slight increase in Q2, up from 18.3% in the previous quarter, to 18.7%.
The average term of a bridging loan remained at 12 months while the typical completion time on a bridging loan application in the second quarter increased by four days to 44.
Gareth Lewis, commercial director at MT Finance said: “Now that Boris Johnson has been announced as the new PM and has made Brexit top of his to-do list, this should help give the market the certainty it needs.
“If the rumours of a stamp duty overhaul are true, we expect the change to ease the pressures of regulation and excessive taxation on UK property investors. It will be interesting to see what happens over the coming months, but hopefully the sector can look forward to buoyant growth.”
By Kate Saines
Source: Mortgage Finance Gazette