Quarterly gross lending in the bridging sector increased by 14% from £348 million in the second quarter of 2012 to £399 million in the third quarter, according to the latest West One Bridging Index.
It also found that lending in Q3 was 65% higher than the equivalent period in 2011.
On a 12-month basis, lending grew by 12% from £1.26 billion in the year up to June to £1.42 billion in the year up to September.
“Pain for the big high street lenders has been gain for bridging lenders,” said Duncan Kreeger, chairman of West One Loans.
“The recovery in the main mortgage market has been nipped firmly in the bud by renewed uncertainty. Funding from the money markets has become 45% more expensive since February – and higher capital adequacy requirements mean more business will be coming the way of the bridging market. Mainstream lenders are also being squeezed by the lack of confidence the money markets still have in even some of the largest banks.
“The big banks are turning away borrowers who, in a normal market, would be credit worthy. Credit scoring is tight, and plenty of affordable mortgages are advertised as widely available, when in fact borrowers have to cross a high threshold to be able to access them.
“It’s great news that the industry is back on track to hit £1.5 billion gross lending by the end of 2012. After last quarter’s index, the prediction from the start of the year looked less likely, but this is reassuring news.”
The average loan size was 8% higher, rising to £398,000 in Q3 from £368,000 in Q2.
However, the average loan is still some way off March’s record figure of £479,000.
The number of loans granted in Q3 grew by 6% from Q2, leaving loan volumes 18% higher than in Q3 last year. Several percentage points of the quarterly growth are attributable to the extra bank holidays which dampened activity in Q2, West One said.
“The industry is still filling a gap in mainstream funding, but expansion is slowing to a more sustainable pace,” said Kreeger.
“The huge acceleration in quarterly growth reflects a weak second quarter, when all the bank holidays and the Olympics temporarily put the brakes on activity. Last year growth was so explosive that it took lots of people, even in the industry, by surprise.
“A year on, and the bridging industry is maturing and becoming an established sector in its own right. The days when bridging was seen as a last resort for desperate borrowers are a distant memory. It has become an indispensable source of finance for society. It is attracting more credit-worthy borrowers, who now see it as a legitimate alternative to high street finance. Property developers rely on bridging lenders to fund projects that the high street won’t back in these straightened times. Without these developers, whole transaction chains stall and the housing market would fall deeper in to trouble.”