Bridging industry will exceed £800m this year

Gross lending in bridging finance is set to reach £806 million this year, according to projections provided by West One Loans as part of its new quarterly Bridging Finance Index.

West One says its findings demonstrate how rapidly the bridging industry has expanded. It is filling the gap left by traditional high street lenders as they retreated from the mortgage market since the credit crunch began.

The volume of bridging loans advanced has risen 26 per cent in the year to the end of August as an increasing number of property investors have turned to the sector to finance their projects. Gross lending rose 46 per cent in the same period.

Given the short-term nature of bridging finance – the average loan term was just under eight months in 2010 – net lending can be rather volatile as loans constantly redeem and are constantly granted. While the market is still relatively small, a few big loans redeeming or being granted can make a big difference to net lending so the index aims to assess the longer-term trend rather than one quarter’s numbers. Net lending has expanded 53 per cent since the beginning of 2010.

Evidence for the demand from landlords is clear from the increasing shift in the market towards residential bridging finance and away from commercial. In 2009, 70 per cent of loans were granted to the residential sector. Last year, this had risen to more than three quarters. So far in 2011, 82 per cent of bridging loans by volume are to residential property investors.

Duncan Kreeger, CEO of West One Loans, explained: “Having a clear exit strategy is the most important consideration when taking out bridging finance.

“Residential property has a wider range of refinancing options than commercial property. The strong demand for accommodation means investors can be confident they can refinance easily when they are ready to rent.

“Commercial property is harder to value for bridging purposes and the market is relatively oversupplied at present, making rental voids more likely and therefore exit more difficult.”

The average loans size has been rising and this year has sat between £250,000 and £350,000. In line with this, loan-to-values are also trending upwards. In August, the average LTV (weighted by value) was 48.4 per cent, up from 42.5 per cent a year ago.