Growth in traditional mortgage lending (1.4%) was outpaced 50 times by annual growth in secured short-term lending (72%), according to analysis from bridging lending West One Loans.
Gross mortgage lending, as measured by the Council of Mortgage Lenders (CML), was outstripped 51 times over by the growth of short-term secured loans in 2012.
The lender body estimated a 1.4% annual expansion in gross mortgage lending between 2011 and 2012. This puts the CML’s gross lending at £143 billion in 2012 – or a 61% decline from 2007 levels.
Meanwhile, annual gross bridging lending grew 72% over the same period. In 2012 the bridging industry recorded annual gross lending of £1.57 billion, according to the latest West One Bridging Index. Gross lending expanded by £653 million in a year, from £912 million in 2011.
“The high street is growing at a fiftieth the rate of the bridging industry – because high street finance has developed a chasm between investors and borrowers,” said Duncan Kreeger, chairman of West One Loans.
“Half a decade of households paying down debt has done nothing to stimulate lending to new borrowers through our broken banking system.
“Looking to the future, I can’t see this changing. Traditional lenders keep watering down and then throwing out their over-optimistic predictions. Only a fortnight ago, 9% annual growth predicted by the Council of Mortgage Lenders was cut in half by the IMLA. Unless we’re talking next century, high street finance is looking less and less like the future. Contrast that to explosive growth of alternative sources of funding like bridging.”
On a quarterly basis, gross mortgage lending grew by 0.5%, according to the CML. Meanwhile, gross bridging lending expanded by 10% since Q3 2012, when this stood at £399m. Gross bridging in the final quarter was £439m, 49% more than the equivalent period in 2011.
Kreeger said: “In the autumn, I predicted bridging would break the £1.5 billion mark by the start of 2013. That looks too conservative now. Bridging will smash the £2 billion mark by the end of the year – at an absolute minimum.
“In the 12 months to September, the bridging industry had lent £1.42 billion. Just three months on, it’s 10% bigger. This is being reflected in the size of loans, too. The average bridging loan size rose by 14% to over £450,000 in Q4.”
CML figures show a 2.1% increase in the size of the average UK mortgage between 2011 and 2012.
Meanwhile, larger bridging loans in 2012 were a significant driver behind rapid growth in gross bridging lending.
While the number of loans also rose, the year saw a 36% increase in the size of the average bridging loan. The number of bridging loans granted in 2012 was 23% higher than in 2011, despite a slight drop-off at the end of the year. Loan volumes in Q4 fell marginally by 3%.
Kreeger said: “As it matures, the bridging industry is taking on bigger and bigger projects. This is because high street banks are keeping their criteria so tight they’re effectively ruling out any ventures that could be classed as development. That would have left thousands of prime investment opportunities high and dry – if it wasn’t for alternative finance.
“Bridging loans are decided on a case-by-case basis. Especially for peer-to-peer bridgers, it’s the real value of security that matters, not just the purchase price or an automated valuation.”
Commercial loans are growing as a proportion of all bridging loans. Alongside the growth of the entire bridging industry, this has left commercial bridging 99% larger than in Q4 2011.
“Vince Cable, the Business Secretary himself, admitted last week that Funding for Lending has failed small business,” said Kreeger. “In the third quarter of 2012, bridging finance alone lent the equivalent of over three-quarters of the funds the government did via Funding for Lending. But bridgers did it without the £4.4 billion price-tag.
“Only a few weeks ago the Bank of England admitted traditional funding for businesses fell by 4.1% in the year to November. Meanwhile, the bridging industry doubled its commercial lending last year. Long-awaited changes in planning laws mean we expect more bridging loans to be used for commercial and mixed purposes in 2013. New rules on converting property between different uses are a huge opportunity for bridging finance. When a developer’s project doesn’t fit the unimaginative prescriptions of the high street banks, a short-term secured loan can often make the difference.
“The core residential market is also growing strongly. Developers, landlords and owner-occupiers are still being shunned by the high street banks. For a good proportion of projects, that’s where the bridging industry can help get things moving.”
Loan to value ratios across the bridging industry have continued to fall. The average first-charge LTV in Q4 2012 was 44.7%, down from an average of 48.6% in Q3. LTVs are also down in a year-on-year comparison, 1 percentage point lower than the average LTV in Q3 2011, which stood at 45.7%.
Kreeger said: “Falling LTVs mean the bridging industry is providing investors with even less risk on their capital. This comes despite the industry funding ever larger projects. Lower LTVs also reflect evolving sources of demand. Many credit-worthy borrowers with plenty of equity are making use of the bridging industry, rather than traditional sources of funding.”
The average rate on a bridging loan saw a slight uptick at the end of 2012, increasing to 1.35% in Q4, from 1.31% in the previous quarter. On an annual basis rates have fallen; 1.35% in the final quarter compares to 1.42% in Q4 2011. This reflects the ongoing trend for lower rates, also illustrated by the average rate for the whole of each year – 2012 saw an average interest rate of 1.37%, compared to 1.42% in 2011.