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Bridging sector grows in Q3

The UK’s bridging sector continued its healthy growth of 2017 with another strong quarter’s performance, yielding a new high of £4.7bn in the year to Q3, West One’s Bridging Index showed.

The latest edition of the quarterly report revealed that gross annualised lending increased from £4.3bn in June to exceed 2016’s pre-EU Referendum high of £4.4bn.

The bridging sector has recovered from the slump in the Q3 of 2016 that followed the referendum result.

Marie Grundy, sales director of West One, said: “2017 has proven to be a strong year for bridging finance, with a clear return to form after the post-Referendum turbulence this time last year.

“Seeing further robust new business performance in a quarter that includes the typically-quieter summer holiday period is very encouraging.

“The wider property and property finance markets have flattened against continued political uncertainty due to slow progress negotiating Brexit, and the prospect of interest base rate rises finally arriving.

“This new market high therefore reflects the underlying strength of bridging.

She added: “We believe there is still that slack in the market and expect that the bridging market will continue to this pattern of solid growth, despite some slowing in the housing market.

“With pockets of growth outside London and the South East, we anticipate seeing more of that growth regionally.”

Trends in the bridging market

The emergent trend in the first half of 2017 of smaller transaction sizes has continued through Q3.

Average loan sizes dipped under £600,000 compared to averages in excess of £900,000 at the same time last year.

There were less large transactions coming to market, reflecting the relatively depressed market for high-end properties with values over £1m, especially in London.

s performance figures from different sources pointed to more upbeat property markets in some regional hotspots such as the East Midlands or Greater Manchester, it seems property investors are focusing on deals in those regions, with typically smaller ticket sizes.

The regional picture

Between actual residential property and property finance data, and forward-looking expectations data, varying patterns emerge.

Nationwide and RICS found the wider South East of England has also become more subdued in price growth, with a markedly negative outlook.

But UK Finance’s regional mortgage data showed mortgage lending in the London region at 10% more than that of Q3 2016.

Data for house prices identify both East and West Midlands as hotspots for annual price growth, alongside the South West, where supply is highly constrained.

The wider South East region is still showing growth, albeit at a slowing rate.

Savills research identified Midlands locations like Birmingham City, Leicester-Nottingham and Northampton and pockets in Scotland like central Glasgow and the Galashiels area of Edinburgh commuter hinterland.

With central Manchester also shining a light for the North West of England, this indicates the opportunities that investors are starting to exploit, where they know the local market.

Taking forward-looking sentiment data into account, other regions came to the fore, suggesting further scope for agile investors to grasp emerging opportunities.

September’s RICS residential market survey of members pointed to likely buoyancy in the North West, Scotland and Wales, with positive Q3 sentiment across a range of measures from price expectations to new enquiries and listings. This suggested positive market conditions will continue in the East Midlands and South West.

Bridging interest rates

Interest rates in Q3 recovered slightly from Q2’s low of 0.96%, returning to just above 1% per month.

With Bank of England base rate changes widely expected for some months ahead of the 2nd November 0.25% announcement, it is likely that the market had already begun to factor this shift in.

The report predicted a further rise in bridging rates during Q4.

Danny Waters, chief executive of Enra Group, said: “The bridging sector has performed well during Q3, despite the backdrop of concern around the progress of Brexit negotiations, and economic indicators pointing to both a slower economy and to the interest rate rise that ultimately came in November.

“Whatever happens next, the industry must continue to adapt to conditions, and provide the diverse and flexible funding options that property professionals need, so they can take advantage of the changing, regional landscape that we are seeing develop.”

Source: Mortgage Introducer

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Bridging loan volume dips in Q3

Bridging volumes fell by 4.9% in Q3 but remain some 2% higher than last year, data from Bridging Trends has shown.

The firms that contribute to Bridging Trends reported that gross lending had dropped to £142.75m

The split between first charge and second charge lending stood at 82% and 18% respectively indicating consistent investment in residential properties-to-let.

And Joshua Elash, director at MTF, said in regards to unregulated bridging continuing to dominate the landscape: “The implementation of the Prudential Regulatory Authority’s rules relating to the treatment of portfolio landlords means this upward trend is likely to continue for the foreseeable future.

“Increasingly larger number of professional property investors will consider bridging finance when purchasing a new property which they otherwise intend to refurbish and sell.”

Chris Whitney, head of specialist lending at Enness Private Clients, added: “I think when you keep in mind the fact that this was over the summer holiday, a drop of only about 5% in lending volumes compared to the last quarter is actually quite impressive.

“I was surprised the average interest rate hadn’t fallen further than it has. We have seen pricing under quite a bit of downward pressure as certain lenders fight to increase market share and protect what they already have from new entrants.”

Additionally the data found that mortgage delays were the most popular reason for taking a bridging loan and the average duration of a loan stood at 12 months.

Average LTV levels reached almost 50% with the average monthly interest rate across first and second charge lending decreasing to 0.82% from 0.84%.

Source: Mortgage Introducer

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Bridging in probate

Bridging loans are incredibly flexible and may be put to a variety of uses including resolving probate issues when concluding a will.

When a will is presented between various parties, it can throw up financial hurdles. There are numerous benefits to be gained by fast tracking the settlement process and using a short-term finance solution to meet resolution.

Annual bridging lending grows for third consecutive quarter

By using bridging, beneficiaries of a will are able to pay legal fees and inheritance tax straight away, releasing 70% of the value of the property immediately without making any interest payments which are covered by the loan facility.

This ultimately allows the beneficiary to market the property for a longer period of time to maximise its value which will be far greater than the interest payments on a bridging loan, rather than discounting the property for a quick sale or through auction.

Resolving debts

Carrying out someone’s will is not always as straightforward as we might like. Although the ownership of their various assets might be easy enough to resolve, the average person will take on a network of debts and credits which must be resolved in their will.

Bridging finance offers a person’s family some breathing space and they can use the loan to pay off debts instead of being forced to sell assets as quickly as possible. Bridging lenders are also highly flexible and quick to put solutions in place. There’s no red tape and it’s possible to create a loan structure that’s perfectly suited to individual circumstances

In many ways, a bridging loan for probate finance is very similar to a standard bridging loan. The loan will generally be for a short fixed term, commonly less than 12 months (though longer terms are available), and can be of any value from tens of thousands to tens of millions of pounds.

Inheritance tax

When concluding a will, beneficiaries will inevitably face tax implications which must be factored into the overall process. Again bridging can help streamline and manage this inevitable challenge by providing a quick fix solution.

Many estates in the UK become liable for inheritance tax, which must be paid within six months and typically a 40% share of the estate upon liquidation. Again, this financial pressure can be eased through the use of bridging finance, as it enables the will’s executors to restructure and refinance to meet the cost of inheritance tax.

Conclusion

Without bridging finance it would be very difficult to resolve the financial affairs that can be brought about in a deceased person’s will.

The time pressures that quickly become apparent would require that many estates be quickly broken down and sold, rather than being realised at their full value. Bridging loans are therefore a helpful tool that enables individuals to pass on their wealth through generations, and allows inheritors to benefit more from their parent’s estates.

Source: Mortgage Introducer