Brokers and advisers have been increasingly using bridging loans to help their clients get mortgages, data has revealed.
Bridging loan activity, traditionally seen as a niche area of the mortgage market, peaked to £150m during the second quarter of 2017.
This is a 26 per cent increase on first quarter gross lending and the highest level since the quarterly Bridging Trends survey was launched in 2015 by lender MTF and several specialist finance brokers.
Reasons given by clients and brokers for the rise in bridging activity included significant delays in getting a traditional mortgage from high-street lenders.
The survey revealed refurbishments were the most popular reason for obtaining a bridging loan in the second quarter of 2017, contributing to 27 per cent of all lending. This was the first quarter that mortgage delays were not the top reason for getting a bridging loan, moving into second place at 25 per cent.
According to the data, despite the higher bridging activity, the average loan-to-value (LTV) levels dropped to a new low of 45.4 per cent during the second quarter of 2017, the lowest level since the first quarter 2015 as borrowers and lenders both took a more conservative approach, perhaps as a result of ongoing Brexit negotiations and the weak sterling.
The bridging market is going from strength to strength, with an increasing number of lenders coming to the fore with innovative products. Chris BorwickAverage monthly interest rates for bridging loans rose for the second consecutive month to 0.84 per cent, from 0.83 per cent in the previous quarter, but were lower than 0.88 per cent during Q2 2016.
Joshua Elash, director of MTF, commented: "Demand for specialist finance remains strong, notwithstanding a slight increase in the average monthly cost of credit to the consumer.
"What is interesting however, for the first time since reporting began, mortgage delays are not the most
popular use of a bridging finance loan, having been replaced by refurbishment.
"While it is too early to form any conclusions, this may be indicative of a shift in the market, coming off the back of recent increases in stamp duties, and the changes to tax relief on buy to let property, more investors in this,quarter focused on adding value to their existing investment properties."
Paul McGonigle, chief executive of Positive Lending, said he was not surprised the Bridging Trends report showed increased lending figures.
He said: "Brexit concerns appear to restrict some lenders where higher lending refurbishments on larger value stock are required.
"This has certainly been the growth area for Positive Lending, and while this reflects in the bridging
sector too, with some lenders, there are others that have the experience and appetite to assist."
Broker Chris Borwick, director at SPF Short Term Finance, said he believed the growth in the number of products available to brokers and clients was helping to fuel the bridging boom.
He explained: "The bridging market is going from strength to strength, with an increasing number of lenders coming to the fore with innovative products, as well as customers being made more aware of its uses and benefits.’"
Similarly, broker Chris Whitney, head of specialist lending at Enness Private Clients, commented that short-term lending has become far more popular, especially as servicing times at high-street banks have proved inadequate.
According to Mr Whitney: "We are seeing more clients ‘bridging’ a transaction but instead of moving the loan, they are preferring to stay with the same lender based on the efficient and timely service they have received from the lender on the initial loan.
"This is even though the rates are higher than the high street names - which are continuing to fall short of client needs and expectations."
To help brokers explain short-term lending and bridging to their clients, the Bridging Trends report team has created a video explaining the trends, which can be viewed online.
simoney.kyriakou@ft.com
