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Bridging loan market steady at £146.5m in second quarter

The bridging loan market has remained stable in the second quarter, rising to £146.5m from £144.5m in the first quarter, with first charge loans making up the majority of lending.

According to quarterly publication Bridging Trends, first charge bridging loan applications made up 90 per cent of market volume, up 12.2 percentage points from the prior quarter.

The report said this was partially motivated by investors and landlords seeking taking advantage of the stamp duty holiday.

The most common reason for using bridging loans was funding a purchase of an investment property, accounting for just under a quarter of contributor transactions, slightly up from Q1.

Traditional chain break was the second most popular use of bridging finance at 20 per cent of transactions, roughly in line with previous quarter.

Regulated refinance dropped to five per cent of contributor transactions, from 13 per cent in the prior quarter.

Regulated bridging loans fell in the second quarter, going from 47.7 per cent to 41.6 per cent.

The report noted that average monthly interest rates marginally increased in Q2 to 0.79 per cent, up from 0.74 per cent in the previous quarter.

Average bridging terms were 12 months with no quarterly change.

The average loan to value levels fell slightly from 55.2 per cent to 54.9 per cent, which the report said implied borrowers were not “overstretching themselves”.

The time taken to process a loan application also fell, with average completion times pegged at 47 days, down from 53 days in the first quarter. This was the lowest recorded timescale for completions since the second quarter of 2019.

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Gareth Lewis said: “As purchases would have been at the top of people’s minds due to the stamp duty saving, it’s no surprise to see that first charge lending has significantly increased its share of transactional volumes.

“It will be interesting to see if this percentage decreases in the coming months as consumers look to raise finance out of existing properties to fund further property acquisitions or businesses.”

Chris Whitney added: “It looks like we have reached quite a stable platform over the last two quarters. Any previous pandemic worries seem to have been put to one side with the stamp duty holiday deadline creating a frenzy of activity. The higher level of investment purchases shows confidence in the UK property market is strong.

“I am slightly surprised that lending volumes weren’t higher. The market certainly felt very busy as we struggled to get valuers out in a timely manner due to volumes and many a solicitor was having to burn the midnight oil to keep up with demand.”

Stephen Watts said it was encouraging to see completion times had shortened since the last quarter as it suggested lenders were streamlining their processes to include remote valuations.

He added: “Some lenders are now offering AVMs up to 75 per cent loan to value (LTV) in some circumstances and with the ability for asset managers to benefit from modern technology and carry out virtual client meetings, more loan applications are benefitting from these time saving factors.”

By Anna Sagar

Source: Mortgage Solutions

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Stamp duty holiday fuels bridging activity

Landlords and buyers rushing to complete before the stamp duty holiday started tapering off helped stabilise the bridging market in the second quarter of 2021, according to the latest Bridging Trends data.

Funding an investment purchase was the most popular use of bridging finance whilst the number of first charge bridging loans increased as buyers rushed to complete purchases.

The bridging market held steady in the second quarter at £146.52m, up on the previous quarter (£144.51m), contributors reported. However, regulated bridging loans transacted by contributors dipped in Q2 – falling from 47.7% to 41.6%.

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The average completion time on a bridging loan application in the second quarter reduced to 47 days, from a record 53 days in the first quarter. This is the lowest figure recorded since Q2 2019 (44 days).

Chris Whitney said: “It looks like we have reached quite a stable platform over the last two quarters. Any previous pandemic worries seem to have been put to one side with the stamp duty holiday deadline creating a frenzy of activity.

“The higher level of investment purchases shows confidence in the UK property market is strong.

“I am slightly surprised that lending volumes weren’t higher. The market certainly felt very busy as we struggled to get valuers out in a timely manner due to volumes and many a solicitor was having to burn the midnight oil to keep up with demand.

“Nice to see the time it takes to draw a loan heading in the right direction albeit was that again stamp duty deadline linked? It will be interesting to see where that is at in the next quarter.”

Matthew Corker added: “We’ve seen a dramatic rise in searches across our bridging section throughout this quarter. ‘Regulated bridging’ has consistently appeared as one of the most searched terms on our system throughout 2021, holding the top spot in April, May and June, likely due to buyers wanting to secure their onward purchase before the end of the stamp duty holiday.

“Interestingly, we’ve also seen a general rise in search numbers in more traditional bridging categories, suggesting that the usual summer lull may not be as pronounced this year.”

Gareth Lewis concluded: “As purchases would have been at the top of people’s minds due to the stamp duty saving, it’s no surprise to see that first-charge lending has significantly increased its share of transactional volumes.

“It will be interesting to see if this percentage decreases in the coming months as consumers look to raise finance out of existing properties to fund further property acquisitions or businesses.”

Source: Mortgage Introducer

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What Can Bridging Loans Be Used For?

Bridging Loan Uses

Sometimes you might need to access money quickly to buy a property and you cannot wait for the lengthy process of a mortgage application or a house sale, so you look for alternative finance options. One solution could be to borrow money from someone you know but if that is not an option, the next consideration is usually to apply for a Bridging Loan.

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What is a Bridging Loan?

A Bridging Loan is a short-term finance loan that can be used for a number of different reasons. It is commonly used to buy a property while an existing property is in the process of being sold but will not go through in time for the money to be available. It could also be used when someone buys a house at auction and they do not have the time to get a mortgage as they need to pay the seller quickly.

Another reason someone might choose to apply for a bridging loan is if they want to pay for urgent renovation work while they wait for a remortgage application to go through. Bridging Loans are frequently used by Property Investors but people who are not investors can also use it if they are in a situation that requires quick finance.

Types of Bridging Loans

There are two types of Bridging Loan:

Closed Bridging Loans

Closed Bridging Loans have a fixed date for the loan to be repaid. Typically, this will be used if you have exchanged contracts and are waiting for your property sale to complete. It may be that there has been a delay that means your mortgage loan is not ready yet. With this type of bridging loan, the lender will want to know exactly how you are going to repay the loan, for example, through sale of your property.

Open Bridging Loans

With an Open Bridging Loan there is no set date for repayment but most lenders would require it to be paid within a year, as it is only ever intended to be a short term finance solution. When you take out a bridging loan, you do not have to have a specific exit plan, such as the sale of a property.

Bridging Loans will usually have higher interest rates that standard loans, due to the quick solution that they provide. They are often referred to as gap financing because they are filling the gap until another finance option is available.

Who can use Bridging Loans?

Bridging Loans can be used by individuals or by businesses, provided that they meet the required criteria. Some Bridging Loans will require the applicant to have some type of collateral as part of the loan agreement, such as property.

How Businesses use Bridging Loans

Businesses often use Bridging Loans for reasons other than buying commercial property via a Commercial Bridging Loan. They sometimes use it to cover costs such as paying tax bills while waiting for another finance solution. Some business owners use a bridging loan to purchase another business in a takeover, or they might cover the costs of a development project.

Bridge Loans for Property

In some situations, a homebuyer may need to take out a bridging loan to pay for their new property while they wait for their existing property sale to go through. If there is a delay in the sale, to avoid their purchase falling through, they can arrange bridging finance to ensure it goes through.

There are fairly strict lending criteria for this type of bridging loan use and the applicant would have to have excellent credit ratings as well as a low debt-to-income ratio. Another part of the criteria that lenders usually require is that the bridge loan is only up to 80% of the combined value of the two properties, which means that the applicant must have a large amount of equity in their property.

If the applicant does have a bridging loan approved in this type of scenario, the mortgages for the two houses are rolled together.

Property investors and Bridging Loans

Many property investors use Bridging Loans to enable them to build up their property portfolio. When they are buying property at an auction, a quick way to finance the purchase is through a bridging loan but they also use bridging finance to buy properties on the market too. Often, property investors will need property purchases to go through as quickly as possible so that they can get tenants into rented property.

Another way that property investors sometimes use Bridging Loans is if they want to buy a property and refurb it and then sell it on for a higher value than they bought it for. This process is called flipping and a short-term loan is ideal as once the property is purchased, they will spend a few months on the refurbishment and then quickly sell the property on.

Experienced property investors are usually quite likely to get approved for a bridging loan because they will have accumulated a lot of collateral in their property portfolio.

How does a Bridging Loan work?

The way that a bridging loan usually works is that a ‘charge’ is placed on your property. This ‘charge’ is a legal agreement that determines which lenders would get paid first if you were to miss payments on your loan and fall into arrears. If you own your property, then the bridging loan would be your first charge but if you still had a mortgage on your property, the loan would be a second charge.

If you are unable to make the payments on your bridging loan, your property could be sold to pay the loan back to the lender.

Is a Bridging Loan expensive?

Generally, a bridging loan will cost more than a standard mortgage because it is a short-term arrangement and the lenders will want to make enough money from the short period of interest to make it profitable for them.

The fees are usually charged on a monthly basis, rather than an annual basis due to the loans usually only running for a number of months. A monthly fee might be somewhere between 0.5% and 1.5% per month, costing considerably more over a year than an average mortgage interest rate.

When you take out a bridging loan, you will also need to consider that there will be a set-up fee for the product, which will be around 2% of the loan, which can obviously end up being a very high amount if you are taking out a large bridging loan.

How much could I borrow with a Bridging Loan?

This varies massively depending on the applicant’s financial circumstances and amount of collateral. The criteria will also differ depending on the lender but a large number of lenders will only lend up to 75% loan-to-value of the applicant’s property. In certain circumstances, if the client has sufficient equity in other properties, then a 100% bridging finance can be provided.

If you are able to take out a first charge loan, because you have no outstanding mortgage on your property, you will usually be able to borrow more than if you are taking out a second charge loan.

Is a Bridging Loan the right option for me?

A bridging loan can be the ideal solution for many people but there are disadvantages to consider too. These are the main pros and cons to be aware of:

Pros and Cons of Bridging Loans

The main Pros of taking out a Bridging Loan include:

  • Fast access to money
  • Able to borrow a large sum of money
  • Protect property chains
  • Enable projects to go-ahead which otherwise wouldn’t
  • Flexible

The main Cons of Bridging Loans are:

  • The interest rates are usually high
  • You will usually pay a large fee for the set-up of the loan
  • By securing the loan against your property, your property is at risk

When you are deciding whether a Bridging Loan is the right option for your circumstances, you should review all of the different options that are available. For example, if you are buying a new property before your existing property sells, you might be able to take out a Buy-to-Let mortgage instead.

However, if you are looking for an option that enables you to have access to money straight away, either to purchase a property, pay tax bills or pay for property renovations, then a bridging loan may be a better option.

Many property investors and property developers use Bridging Loans as a way to get started and then once they have made enough capital, they can stop using Bridging Loans to avoid paying the higher interest rates that typically come with this type of finance solution.

It is a good idea to get financial advice from an expert before you consider taking out any type of financial product. At Commercial Finance Network, as the UK’s leading Bridging Finance Broker, we can provide free expert guidance and advice on Bridging Loans and can help you to find the right type of finance to suit your needs. As a truly independent Bridging Finance Broker, we also have access to all of the UK’s Bridging Finance Lenders, so we can most certainly secure you the best deal and rates available in the market.

If you are interested in any our Bridging Finance services or you want to know how our services could potentially assist in moving your project forward to the next step, speak with one of our Specialist Bridging Brokers today on 03303 112 646 or else request a callback via our Quick Enquiry form below.

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Bridging applications climb but completions dip, new data has revealed

Bridging lenders experienced a ‘busy’ Q1 with new applications soaring by 25.5% compared to the same quarter in 2020 to hit £7.49 billion, new data has revealed.

The value of new bridging applications in Q1 2021 was 12% higher than in Q4 2020 and 17.9% higher on the previous year in the 12-month period ending 31 March 2021, according to the data provided by members of the Association of Short-Term Lenders (ASTL).

The information, compiled by auditors, reflected feedback from the market demonstrating increased demand from customers, the ASTL said.

The statistics also revealed completions in Q1 2021 fell by 1.9% on Q4 2020 but were up by 10.7% on the same period last year.

In the 12 months up to 31 March 2021, completions were down by 24.1% on the previous year, reflecting the period of low activity during last year’s lockdowns.

Meanwhile, the value of bridging loan books dropped to £4.40 billion at the end of Q1 2021, a slight decrease of 1.7% on the previous quarter but down by 3.5% on the same period last year.

There was positive news regarding defaults. Indeed, the value of loans in default showed a decrease of 4.5% compared to December 2020. The value of loans in default is now just 2.2% higher than March 2020.

Vic Jannels, CEO of the ASTL said: “The Q1 lending figures reflect the story we are hearing from the market, that everyone is busy with new business applications.

“In fact, the value of applications in the first quarter of 2021 was more than a quarter higher than the same period in 2021, which was mostly unaffected by the Covid pandemic.

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“The value of completions remains relatively steady, which means we are seeing an increasing number of bridging loan applications that are not progressing through to completions.

“This is likely to be a combination of more rigorous underwriting by lenders, brokers hedging their bets by submitting multiple applications to multiple lenders and some cases where bridging is no longer required by the time of the completion date.

“We should keep a watchful eye on this trend as a decreasing conversion rate for loans benefits nobody in the process.

“On a more positive note, the value of defaults decreased on last quarter and is only a little higher than it was at the start of the pandemic.

“This reflects the hard work of all of our members in working with their existing customers over the last year and, with positive signs for the economy ahead, we have reason to believe that this trend can continue.”

Source: Mortgage Finance Gazette

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Bridging could assist with rush to complete before new SDLT deadline

The extended stamp duty deadline is expected to galvanise additional interest in bridging, according to Vic Jannels, chief executive of The Association of Short Term Lenders.

The average time it takes to sell a property has now risen to 295 days, as outlined by GetAgent.

As a result, it is believed bridging will help to ease the pressure on mainstream lenders and allow people to complete transactions ahead of the extended deadline.

Jannels said: “There are likely to be customers, who were unable to meet the first deadline, who will look to bridging to help ensure they hit the next one.

“Generally, a number of the term mortgage lenders are running well behind on service, while most of bridging lenders are still able to move quickly as long as their clients deliver the obligatory documentation in a timely manner.”

Jannels went on to say that while there have been stories of the average time to reach a bridging completion increasing, he does not believe this should distract intermediaries from the fact that, bridging lending can complete in just a matter of days.

This is provided that supporting information is supplied upfront and valuations and conveyancing are lined up correctly.

Chris Oatway, also believes that due to the increased transaction levels, he expects more bridging finance to be required.

However, Oatway said: “I am not sure to what level this will be directly linked to the deadline date.

“If it looks like a transaction will take longer to complete, I think it is more likely that a purchaser will try to negotiate on the purchase price rather than switch their funding strategy to bridging finance due to the additional costs.”

Jannels went on to say that at the ASTL, they have worked together with other trade associations to call for a change to the hard deadline that was originally scheduled for 31 March.

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He added: “It has been clear for some time the number of transactions being processed through the system has put every business involved in the process under immense pressure and that many transactions would not hit the original deadline.”

The consequence of this would have been many transactions falling through and many customers liable to bigger tax bills than they had planned for.

Jannels outlined that the extension of the full relief until the end of June will be positive news for transactions currently in the system and the inclusion of partial relief until the end of September will prevent a significant cliff edge as we faced in March.

Although Jannels noted that the maximum potential saving drop from £15,000 to £2,500 at the start of July, therefore he outlined the risk of a second another rush to beat the deadline at the end of June.

Looking to the rising use of bridging, Oatway explained that there is a “buzz” within the market at the moment and transaction levels have begun to increase.

He said: “With a renewed appetite to lend and a positive outlook in regard to the economy and liquidity remains as high as ever, I can only see the industry going from strength to strength.

“Property will always be a great inflation hedge – as well as being free from capital gains tax – and so, with the overall increased desire for outside space, we continue to expect transaction levels to remain high for the year ahead.”

By Jake Carter

Source: Mortgage Introducer

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Bridging Completions Fell But The Value Of Applications Increased

Bridging completions were £2.88bn in 2020 having fallen 27.9% from £3.99bn in 2019, according to the Association of Short-Term Lenders (ASTL).

The data also outlined that bridging loan books dropped to £4.48bn, a decrease of 2.5% on the previous year.

However the value of applications in 2020 increased to £25.82bn which is up from £23.19bn in 2019, representing an 11% rise.

According to the ASTL, the surge in applications in Q3 last year was accountable for the 34.9% increase in completions in Q4, totalling £918m of completions.

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Applications in Q4 2020 were at £6.69bn, a quarterly decrease of 12.7%, however they were still up by 22.9% on the same quarter in 2019.

Meanwhile, average LTVs fell slightly in Q4 and have now dropped to below 59%.

The value of loans in default in Q4 2020 increased by 13.9% on Q3, and was 23.8% higher than Q4 2019.

Vic Jannels, chief executive of the ASTL, said: “The Q4 lending figures give us an opportunity to review the performance of 2020 as a whole.

“Bridging completions were down on the previous year, which is to be expected given the periods of national lockdown.

“However, applications were actually higher than in 2019, which reflects the enormous potential the bridging market has to provide customers with a funding solution through these difficult times.

“We must, however, remain cautious.

“The effects of economic slowdown are starting to be reflected by the value of loans in default and, while the roll out of the vaccine for COVID-19 continues at pace, a return to normal levels of economic activity seems unlikely before the summer, so these trends may persist for several months.”

By Jake Carter

Source: Mortgage Introducer

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Bridging market showing encouraging signs of activity

The bridging market is showing encouraging signs of activity as investors look to add value or yield, according to the latest Bridging Market Bulletin from Shawbrook Bank.

The bulletin delivers a snapshot of the latest trends and outlook for the UK bridging finance market.

This optimistic picture is reinforced by recent state of the market data from the ASTL which showed bridging applications hit their highest ever level in Q3 2020, and completions rose by more than 40% as the market bounced back following the first lockdown.

In an analysis of the market, Shawbrook observed the trends driving demand which included a buoyant auction market, an uptick in heavy refurbishment projects and investors capitalising on the stamp duty holiday.

Emma Cox, sales director at Shawbrook Bank, said: “It’s been a difficult time for the property market, and of course the current landscape has left many facing challenges – especially within the bridging space, where some lenders had to halt business in this area for a period of time during the height of the pandemic.

“It is positive to see many of these lenders recently return to market, and as our report shows, to see that the housing market is moving again.

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“Whilst some of this activity in the bridging market will no doubt be down to the releasing of pent up demand – something that Rishi Sunak’s stamp-duty holiday will support further – we are also seeing an uptick in investors looking at alternative strategies to sure up investments.

“The use of bridging to carry out refurbishments and conversions, as well as to aid chain breaks due to elongated sales processes, is an essential funding option that can support lucrative investment opportunities.

“We recently announced revised pricing across our bridging range, with rates now starting at 0.5% for both regulated and unregulated products, in order to show our continued appetite to aid brokers in making the most of these opportunities.

“The bridging market has demonstrated remarkable resilience throughout this year and, as much as we may face more challenges towards the end of 2020 and into the early parts of 2021, we believe this adversity may create opportunities for investors, and brokers, which Shawbrook plans to continue to support as much as possible”.

By Jessica Nangle

Source: SFI

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Bridging lending up by nearly 20% in 2019

Bridging loan books grew to £4.5 billion in 2019, an increase of 19.7% compared to 2018, according to figures compiled by auditors from data provided by members of the Association of Short-Term Lenders (ASTL).

Completions in Q4 2019 reached £1.068 billion – an increase of 13.7% on Q3, while average LTVs continued to remain below 60%.

However, applications in the final quarter of 2019 fell by 10.7% on the record-breaking previous quarter.

The value of loans in default grew by 13.2% in Q4 2019 from the previous quarter.

Vic Jannels, CEO of the ASTL, commented: “The value of outstanding bridging loan books jumped significantly last year driven by both an increase in new business and a trend for borrowers to take bridging finance over longer terms.

“We did see a fall in applications in the final quarter of 2019 compared to the record breaking Q3, but in the context of both a December General Election and Christmas, this is perhaps unsurprising.

“There is, however, reason to be cautious. The value of loans in default has continued to rise, and there is some evidence that repossessions are also increasing, so it is important that lenders maintain responsible underwriting and collections practices alongside their appetite to continue to grow their lending.”

By Joanne Atkin

Source: Mortgage Finance Gazette

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Bridging loan applications up 17%

Bridging loan applications in the third quarter of 2019 were up almost 17% year-on-year standing at £6.1bn.

According to figures compiled by auditors from data provided by members of the Association of Short-Term Lenders (ASTL), year-on-year annual applications hit nearly £23bn while completions remained at more than £4bn.

Q3 completions stood at nearly £940m, a decrease of 2% on the same period last year, although year-on-year completions were up by 1%.

At the end of the third quarter, bridging loan books totalled £4.3bn, a reduction of 6% compared to last quarter, but an increase of more than 5% on the same period last year.

Benson Hersch, CEO of the ASTL, said: “This is another strong set of results for the bridging sector. Applications for loans have increased even more steeply than completions, with a staggering record £6.1 bn figure for Q3 2019.

“This can possibly be ascribed to intermediaries approaching more lenders, or to new lenders getting their part of the pie.

“Whatever the reason, there is no doubt that the sector is in rude health and estimates of total loans written for the year in excess of £6bn seem to be on the money.

“Year-on-year figures from the data survey show annual completions by members currently at more than £4bn, and they are on an upward curve.

“Back in September 2012, total lending was £885m, with the billion mark being reached at the end of the following quarter.

“This is my final set of quarterly figures as CEO of the ASTL, and it gives me a great sense of pleasure and achievement to leave the industry in such a strong position. It is not, however, the time for complacency.

“The wider political and economic environment remains uncertain and the challenge for the industry now is to continue this level of activity whilst maintaining high standards of underwriting and customer focus.”

By Ryan Fowler 

Source: Mortgage Introducer

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Investor demand for bridging finance

This has been the case for the first three quarters of the year but in Q3 bridging finance for property development nudged down to 22% from 25% in Q2.

A traditional chain-break was once again the second most popular use for bridging finance, contributing to 20% of all lending in Q3, up from 18% in Q2 2019.

Bridging loans for business purposes fell from 12% to 6% in the third quarter.

The Bridging Trends figures are derived from lender MT Finance and specialist finance brokers Brightstar Financial, Capital B, Clever Lending, Complete FS, Enness, Impact Specialist Finance, Positive Lending, Y3S and UK Property Finance.

Bridging loan growth weakened in the third quarter, with transactions by the contributors to Bridging Trends hitting £181.64 million, down by £3.2 million on the previous quarter.

The number of regulated bridging loans within the report rose to 42% in Q3, up from 37.5% in Q2. There was a lower average monthly interest rate in the third quarter (0.74%), a decrease of 0.05% on the previous quarter.

Demand for second charge loans remained consistent at 18.4% in Q3, with average LTV levels at 53.1%.

For the fourth consecutive quarter, the average term of a bridging loan remained at 12 months. The average completion time on a bridging loan application in the third quarter increased by seven days to 51.

Gareth Lewis, commercial director at MT Finance, said: “Bridging loan activity for the third quarter remained stable, coupled with the most popular uses, is a good indication of strong demand from borrowers seeking to purchase property fast while prices are low, ahead of Brexit’s conclusion.

“It’s quite clear that the uncertainty of Brexit has had its effect on the London property market, with prices dropping significantly in many boroughs. This has prompted many property investors to utilise the speed of bridging loans to act quickly on opportunities.

“With the EU deadline now extended, it would be reasonable that we’ll see the same trends continue throughout the rest of the year.”

Andre Bartlett, director of Capital B Property Finance, commented: “We are still seeing strong demand for regulated loans for chain breaking etc for good clients, at low LTVs. The appetite for lenders for these types of deals remains healthy and rates continue to be consistently low and the competition is still fierce.

“The downside is average completion times for loans is heading in the wrong direction, but that may be due to matters outside of lenders’ hands. I would love to see the average completion time get down to below 40 days.”

Chris Whitney, head of specialist lending at Enness, added: “It is a buyers’ market right now, especially for international buyers who are also taking advantage of the weak pound.

“This, and suppressed prices due to the political uncertainty, means that many international buyers are picking up assets at over 20% lower than they might have been three years ago.”

By Joanne Atkin

Source: Mortgage Finance Gazette