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Bridging volumes rise in ‘buoyant’ short term loan market

There has been a 46% increase in gross bridging loan volumes in Q3 2020, as the sector recovers from the Covid-19 lockdown.

According to the latest Bridging Trends reports regulated transactions continued to dominate the sector while the average interest rate fell in line with pre-Covid-19 levels.

There was also a rise in demand for regulated refinance, according to the quarterly report produced by short-term finance lender, MT Finance.

The report revealed contributor lending transactions totalled £115.52 million in the third quarter of 2020.

Although lending figures were 35% below the pre Covid-19 levels of £180.94 million, they had risen significantly (46%) from the £79.4 million of bridging loans transacted in the previous quarter. This highlighted the impact of Covid-19 restrictions being eased.

MT Finance’s report showed regulated bridging lending continued to dominate the sector in Q3 at an average of 53% of all lending, compared to 47% of unregulated transactions.

It said the average weighted monthly interest rate in Q3 decreased to 0.78% from 0.85% in Q2. This fell back in line with rates offered before the Covid-19 outbreak (0.75%).

Meanwhile, average LTV levels in the third quarter increased to 51.7%, from 48.8% in Q2. This was likely attributed to borrowers turning to bridging finance as mainstream lenders continued to tighten their maximum LTV restrictions.

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Demand for second charge lending dropped significantly, accounting for an average of 17.7% of total market volume in Q3 – down from 26.1% in Q2.

For the eighth consecutive quarter, the average term of a bridging loan remained at 12 months while typical completion time increased from 50 to 52. This could be attributed to operational capacity issues, the report said.

The most popular use of a bridging loan remained the same as the previous six reports – to purchase investment property.

Gareth Lewis, commercial director at MT Finance, said: “The stamp duty holiday and rising house prices has ensured that the market remains busy and it has been well publicised that the mortgage market is currently feeling the strain when it comes to delivering acceptable processing turnaround times, which can add to an already stressful experience.

“Luckily, bridging finance is a useful tool for brokers to help unlock a transaction for a client allowing them to meet deadlines.

“Given the stress on a chain, presented by the slow processing times, it is unsurprising to see more clients turning to regulated bridging finance to support their purchases.”

Craig Hardiman-Scott, senior associate at Sirius Property Finance, said: “Customer demand is extremely high, so it comes as no surprise that the short-term loan market continues to be very buoyant from developer exits through to business capital injections to name but a few.

“Those with competitive rates, products, and service that have been able to adapt their offerings throughout the pandemic are well placed to continue seeing the benefits.”

By Kate Saines

Source: Mortgage Finance Gazette

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