The latest West One Bridging Index has found that the UK bridging market is now three times bigger than when West One’s inaugural index appeared in March 2011 – rising from £0.8bn of gross annual bridging lending then to more than £2.4bn today.
The bridging sector almost a quarter larger than it was in at the beginning of November 2013.
On a bi-monthly basis, the two-month period ending 1 November saw £433 million in gross lending, up from £397 million in the same two months in 2013.
Duncan Kreeger, director of West One Loans, said: “The rapid rate of growth enjoyed by the bridging loan market has long outstripped that seen in other sectors and it was to be expected that the pace of this would level off at some point.
“We have now entered a more stable phase of development, but annual growth of more than 25% is still some going and proves that the market still has plenty of capacity for further improvement.
“As perception of the bridging industry continues to improve and awareness of the usefulness of the products spreads, then there is no reason why the sector can’t build on its previous successes and carrying on growing into 2015. We’ve seen high street banks regain some of their appetite to lend in 2014, but there still seems a certain reluctance to get things moving on the development front and bridging can help plug the gap as it has so effectively in the past.”
Meanwhile, the volume of loans written rose by 19.3% in the year to November and by 8% on the previous two-month period. This growth was supported by an increase in the average loan size to £508,000, a 17.2% increase on the equivalent period last year.
Average loan sizes have fallen slightly since the summer though, when the typical bridging loan was worth £581,000.
“If just the volume of loans or just the average loan size were growing, then there would be the risk that all the sector’s future growth prospects were in one basket, but the fact that both are increasing in tandem shows that quality and quantity are both heading in the right direction,” said Kreeger.
“Bridging lenders are showing an appetite not just to support an increasing number of projects, but also to lend larger amounts where the circumstances demand it. The average loan size may be around the £500,000, but we have written a number of £1m+ deals over the past two months which shows that not only is there demand for significant bridging loans, but that lenders are not shying away from such sizeable loans.”
Average loan to value ratios currently stand at 48.4%, a 2.6% year-on-year increase and 0.2% rise from the previous two-month period.
Kreeger said: “Loan to value ratios have edged upwards throughout the year, but averages haven’t exceeded 50% since mid-2012 and even then the overhang was only marginal.
“This shows that those taking out bridging loans aren’t overstretching and lenders aren’t letting their borrowers overburden themselves. You only have to cast your mind back a few years to when lenders were offering mortgages up to 100% loan to value and beyond to realise the problems that high LTVs can bring and the bridging sector is consciously avoiding repeating such scenarios.”