The latest West One Bridging Index has reported that gross annual bridging lending increased to £4.2bn in April.
The rise indicates the market has recovered from the post-Brexit falls in the second half of 2016.
The major drop in lending in Q3 of 2016 meant total annualised lending dropped towards the end of the year. However, with a significant rebound in Q4, as predicted, the market returned to growth at the start of 2017. Indeed the recovery of Q4 has been sustained into Q1. The Association of Short Term Lenders (ASTL) recently reported gross lending figures for their members at £780.2 in Q1, in line with £772.6m lending for Q4.
In Q4 of 2016, smaller investors, many of which had stepped back from the market in the wake of the Brexit vote, made a return and demonstrated a significant and swift recovery in the market. This has continued in the first quarter of 2017, meaning that gross annual lending returned to growth, to rise 2.8% to £4.2bn. West One said it is expected that steady growth will continue throughout 2017, although the market will still need to navigate some challenges ahead.
Stephen Wasserman (pictured), managing director of West One Loans, said: “We’ve seen a rise in bridging loan volumes as investors turn to alternative finance. The increase among smaller investors fits with the overall picture of residential market growth despite a jitter at the higher end of the market.
“The drop which followed the shock referendum result last summer was quickly recovered and this gives us confidence as an increasing number of commentators moot a slowdown in the housing market. Indeed, we continue to predict that the bridging market will go from strength to strength. Market moves present an opportunity for investors and those looking to capitalise on this will be seeking out the financing needed to enable them to do so.
“Whatever happens next, the industry needs to be ready with diverse and flexible financing options for property purchasers. The bridging sector has seen a 5-fold growth in lending since 2011 and is well placed to take advantage of economic fluctuations, being able to adapt to changing needs as and when they emerge.”
The size of the typical bridging loan has continued to grow significantly over recent years, as property professionals increasingly incorporated bridging into their project financing arrangements. In recent months an upward trend has continued. However a noticeable effect in Q1 has been for a larger volume of smaller loans, particularly evident in January and March figures both around £800,000.
West One stressed that two data points are not enough to extrapolate a trend, but this may be a result of fewer large transactions coming to market, as investors wait and see how higher-end properties such as central London residential develop.
Interest rates finished 2016 at 1.04% after steady falls throughout the second half of the year. There was a sharp increase in January 2017 to 1.12% but this quickly fell to 1.02% a month later before levelling off back at 1.04% by the end of April.
Danny Waters, chief executive officer of Enra Group, West One’s parent, added: “The imminent General Election, coupled with the uncertainty surrounding the Brexit negotiations, is likely to have an impact on the property market over the coming months.
“Nevertheless, the speed and flexibility offered by bridging can enable buyers to move faster and capitalise on market conditions, changing the uncertain environment into one of opportunity. In light of this, we remain confident the sector will continue to grow with ever more investors turning to bridging finance.”