BRIDGING VIEW: Bridging is filling a gap in the mortgage market

By Duncan Kreeger is chairman of West One Loans

Come the end of 2011, gross lending in bridging finance will reach £800 million for the first time. Bridging may still be the little sibling of the wider mortgage lending market, but it’s growing rapidly. The industry is expanding to fill the gap left by traditional high-street lenders as they retreat from the mortgage market.

The CML’s figures show gross mortgage lending was an estimated £13.4 billion in August, a 6 per cent rise from £12.6 billion in July, and a 10 per cent increase from £12.1 billion in August 2010.

Compare that to the statistics in the latest West One Loans bridging index (see page 13). To the end of August, the volume of bridging loans advanced rose 26 per cent year-on-year. Gross lending rose 46 per cent in the same period. Net lending has expanded 53 per cent since the beginning of 2010.

Much of the growth is being driven by buy-to-let. The buy-to-let market is extremely strong at the moment (average rents across England and Wales rose by 0.7 per cent to £718 per month in September according to LSL Property Services’ Buy-to-Let Index) as potential tenants find themselves competing for homes.

To meet this demand, landlords often need to buy rundown properties to refurbish that don’t qualify for buy-to-let finance until there is a full rental valuation.

Bridgers can help them to finance their developments thanks to the different funding model. For instance, when we’re looking to fund a loan, West One will look at the LTV of the existing property equity.

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 made to the residential sector. Last year, that rose to more than three quarters.

As the market has expanded, so too have the loans. The average size of a loan rose to £322,000 in August, up 28 per cent year on year. Property investors are now tackling larger, more ambitious projects and are taking advantage of falling interest rates. The average interest rate on a bridging loan declined to 1.35 per cent per month in August, down from 1.54 per cent a year ago.

Demand from property investors, combined with the strong credit performance of loan portfolios mean LTVs have been able to expand over the last year. In August, the average LTV was 48.4 per cent, up from 42.5 per cent a year ago.

Potential first time buyers can only dream of the LTVs on offer to them moving in the same direction.