Gross bridging lending now totals £2.02 billion as of the 12 months to 1 March, according to the latest West One Bridging Index.
This represents an increase of more than one quarter (26%) compared to the previous twelve months,
However, when measured on a bi-monthly basis, annual growth contrasts with a slight seasonal drop. Gross bridging lending of £343 million in the last two months is down 18% compared to November and December, when gross lending totalled £419 million.
Yet, lending in this two month period, from 1 January to 1 March 2014, is up 23% compared to just £280 million in the same two months in 2013.
Duncan Kreeger, director at West One, said: “Just as the UK economy has turned a corner, demand for the right type of finance is on an exciting new path. In the last few months the market for bridging loans has been dramatically busier than at the same point last year. Businesses need finance to invest and expand, and every element of the property industry is gaining momentum by the week.
“In relative terms, the winter months are often the quietest time of the year for the property market. But this year bridging activity has been powering ahead regardless. And now the property market is showing the first signs of the usual spring bounce – on top of all the energy that’s already in the system. So we are set for a formidable few months, and the best bridging lenders will be at the forefront, making the most of every opportunity.”
The survey concluded that a greater number of loans in terms of volume is the main factor behind annual growth in gross bridging lending. Loan volumes in the twelve months ending 1st March were 34% higher than in the previous twelve months.
This comes despite a seasonal fall in volumes of 16% between the final two months of 2013 and the first two months of 2014. This dip in January and February is responsible for the recent bi-monthly seasonal slowdown in gross bridging lending when measured by value.
Meanwhile, the average size of a bridging loan was largely unchanged, up 4.4% on an annual basis but down slightly by 3.3% in the last two months compared to the final two months of 2013.
This leaves the value of the average bridging loan at £444,000 over the first two months of 2014.
On a bi-monthly basis, bridging interest rates averaged 1.19% between 1st January and 1st March. This is slightly higher than was seen in the final two months of 2013, when the average interest rate had reached a low of 1.11%.
However, interest rates remain significantly lower than a year ago. Average monthly interest rates also stand at 1.19% over the twelve months to 1st March 2014 while previously over the twelve months ending 1st March 2013, bridging interest rates were 1.34% per month.
Potential returns for investors funding bridging loans remain several times the total return of mainstream investment classes. Monthly product rates currently stand at 4.9 times those of 10 year government bonds, with a monthly spread of 0.90 percentage points.
Loan to value ratios in the bridging industry have fallen on both an annual basis and more recently on a bi-monthly basis. In the two months to 1st March the average LTV was 45.2%, 2.9 percentage points lower than in the preceding two months when LTVs stood at 48.2%.
On an annual basis, loan to value ratios have fallen by 0.8 percentage points, to 46.3% in the year to February 2014, compared to 47.1% in the year to February 2013.
Kreeger added: “As the economy heats up and the property market goes from strength to strength, demand for bridging loans keeps growing. Meanwhile, these same factors mean the security underpinning loans is becoming more valuable – forming a virtuous circle.
“Bridging has even further to go, and it’s clear the value of properties used as security will be less of a restraint as we move through 2014. Lower loan to value ratios mean the growth of the bridging industry is underpinned more solidly than ever before.”
