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Gross bridging lending totalled £2 billion in 2013, according to the latest West One Loans Bridging Index.
Gross bridging lending totalled £2 billion in 2013, according to the latest West One Loans Bridging Index.
Annual lending growth was driven by extra projects, with the total number of loans up by a third. According to the report, annual gross lending grew in the twelve months by 27 per cent, up from £1.57 billion in 2012.
Bridging interest rates reached record lows, averaging 1.11 per cent over two months to 1st January 2014.
In the two-month period from 1st November to 1st January 2014, industry gross bridging lending was £419 million, up 5.5 per cent from £397 million in the previous two months.
If lending continued at this rate for a year, gross lending in the next twelve months would be £2.51 billion per year explained West One Loans.
Duncan Kreeger, Director of West One Loans, commented: “Economic progress feels more solid by the week, and it’s branching out across every area of business. By securing vital projects against property, firms and individuals stand to make the most from a year of great opportunity.“Bridging has grown up from the industry it once was, and it’s still evolving in 2014. Lenders are expanding and opening their doors to different types of borrower. An economy on the move needs rapid finance that can really get projects started – and short-term secured lending is moving to fill that gap.”
Trends in the Bridging Industry
The Index states that industry loan volumes during the two months ending 1st January increased by 10.8 per cent, compared to the previous two-month period. This brings loan volumes for the whole of 2013 to levels one third (33 per cent) higher than the preceding twelve months.
Meanwhile, the average value of a bridging loan was largely static. The average loan is now worth £459,000, representing a slight drop of 1.4 per cent from the two months ending 1st November.
On an annual basis, loans in 2013 were larger than the previous twelve months, in line with the long term trend. For the last twelve months as a whole, loans averaged £430,000, or 5.2 per cent more than the average loan in 2012.
Duncan Kreeger added: “Just a few years ago the average bridging loan was worth half what it is now. Since then, the biggest transformation has been a growing interest from bigger property developers, professional investors and small businesses looking for more significant funds.
“The last few months have seen growth focused on volumes as enquiries are coming in thick and fast. But the long term trend in terms of loan sizes is also moving upwards. Multi-million pound deals aren’t uncommon anymore, and as 2014 unfolds, even the most ambitious ideas are becoming ever more possible.”
Loan-to-Value Ratios
Loan-to-value ratios across the bridging industry have risen by almost one percentage point in recent months. In the two months to 1st January the average LTV was 48.1 per cent, or 0.9 percentage points higher than LTVs of 47.2 per cent in the previous two month period to 1st November.
On an annual basis loan to value ratios are still lower than previous highs. The average LTV across all twelve months of 2013 was 46.4 per cent - down from 48.0 per cent in 2012.
Duncan Kreeger said: “Proper underwriting and a “safety first” approach have always been cornerstones of the best bridging lenders. Higher LTVs are completely consistent with that principle, but as properties grow in value more gearing is not always necessary.
“There is certainly space to lend at higher loan ratios this year, and the industry definitely has capacity to fund bigger loans where needed. Just as business and investment opportunities are opening up, the property market is putting the pedal to the floor. Alongside rates that look set to stay low for some time, slightly higher LTVs could mean more projects will have access to the finance they deserve.”
Bridging Interest Rates
As a whole, 2013 witnessed the lowest interest rates on record for the bridging industry, averaging just 1.19 per cent across the entire year. This compares to 1.37 per cent in 2012 and an average interest rate of 1.55 per cent in 2010, the first year of the West One Bridging Index.
On bi-monthly basis, rates have also fallen to a record low. In the final two months of 2013, bridging loans cost on average 1.11 per cent per month, down from 1.22 per cent in the two months ending 1st November.
By comparison with other asset classes, potential returns for those funding bridging loans remain several times the total return of mainstream investment classes. Monthly product rates currently stand at 4.5 times those of 10-year government bonds, with a monthly spread of 0.87 percentage points.
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