Landlords in the UK made use of £640 million in short-term secured loans over the 12 months to 1st September, according to the latest West One Bridging Index.
Over July and August, bridging loans for buy-to-let purposes totalled £194 million in gross advances. This represents a record high, at an estimated 36% of total lending.
Duncan Kreeger, director at West One Loans, said: “Landlords don’t just need mortgages. To expand portfolios, landlords are increasingly converting properties from other uses or from a dilapidated state. That’s vital for a growing rental market and it’s a huge economic opportunity. But this type of lending is not supported by most mortgage lenders. There’s a serious gap in the financial system.
“The trouble is that standard mortgages were never really set up for that sort of loan, and the financial crisis has made lending criteria even stricter. For example, it’s practically impossible to get a high street mortgage on an ex-office – or a flat with no bathroom.
“Working alongside mainstream finance, short-term, secured loans increasingly bridge that gap. There are more and more landlords who want to grow their portfolios in more intelligent ways. Most vitally, this can actually expand the stock of available properties.”
Meanwhile, over the 12 months to August, industry gross bridging lending was £1.79 billion, after growth of 2.1% in the two month’s since June. Compared to the previous 12 months, to August 2012, this represents annual growth of 26%.
In the two month period from 1st July to 31st August, industry gross bridging lending was £364 million, or an annualised rate of £2.19 billion. This bi-monthly figure has shown annual growth of 37%.
Kreeger added: “As the economy builds some much-needed muscle, small businesses, landlords and developers are feeling a real imperative to get things done. This industry isn’t a substitute for mainstream mortgage lending, it’s something entirely different. Short-term finance is designed to get a project to completion – such as a vital business investment, or a valuable property in need of renovation.
“Alongside mainstream finance, that’s opening up opportunities that wouldn’t be possible otherwise. We’re seeing record demand from all sorts of borrowers, and expect that to continue for the rest of this year and into the foreseeable future.”
In addition, loan volumes in July and August grew by 7.3% compared to the previous two months. This brings the number of loans advanced by the industry to a record high, and takes annual volumes growth to 13.9%.
Meanwhile, the size of the average bridging loan was £450,199 over July and August, up from £408,214 in the previous two months.
Loan-to-value ratios have fallen over the last two months. The average loan ratio in July and August was 44.3%, compared to 46.3% over May and June.
On an annual basis, loan ratios are also lower. Over the last twelve months, LTV ratios have averaged 45.6%, down slightly from the preceding twelve months to August 2012, when LTVs averaged 48.3%.
Interest rates in July and August were marginally lower, averaging 1.18%, after 1.19% in the previous two months. An annual comparison also shows a trend towards more competitive rates – down to 1.25% in the 12 months to August 2012, compared to 1.40% in the preceding year.
Mark Abrahams, director at West One Loans, said: “Lower rates are making these loans suitable for a wider variety of projects. That’s great news for everyone involved.
“Competition is the main driver for lower rates within the industry, and that reflects the growing variety of lenders and funding channels. Overall that’s good news for borrowers – but it’s also good news for private investors who can now choose from a greater variety of bridging investments than ever before.
“There are plenty of different ways to fund bridging loans – but we find the way that best fits the market is when savvy private investors can pick the projects they’re most interested in themselves. That personal approach is something we extend to brokers and borrowers, but on the other side of the deal too, a flexible service for investors keeps a dynamic form of funding as bespoke as possible for everyone involved.”
