New data from the Association of Short Term Lenders (ASTL) indicates a dramatic decline in bridging loan applications for the first three months of the year. According to the ASTL’s figures, application volumes were down more than 50% in Q1, coming out with a total combined value of £6.3 billion.
Bridging loan completions were also down for the period – a 15.8% decline from the previous quarter, with a total combined value of £1.04 billion. However, both figures remain higher than in Q1 last year, and the outlook for the sector as a whole is generally positive.
Q4 2021’s record-breaking performance for the sector rendered it practically impossible for a similar performance to be achieved during Q1 of this year. Along with a decline in bridging loan applications, the average bridging loan LTV also fell in Q1 – down from 61.2% in the previous period to 58.7%.
A Predictable and Temporary Shortfall
Commenting on the findings, Vic Jannels, CEO at the ASTL, suggested that the figures came as no real surprise.
“The latest ASTL data survey shows a reduction across most areas in the first quarter of 2022 — however, this is set against record results at the end of last year and the volume of lending continues to be strong,” he said.
“Given the current context of global uncertainty and increased living costs, it’s perhaps reassuring that record growth has been curtailed and the market is continuing growing at a steadier pace,”
“This points to high standards of lead qualification and underwriting across our members, who are continuing to provide the bridging finance that customers need, in a way that is robust and sustainable,”
“Average LTVs have fallen and the fact that the value of loans in default has now fallen for five consecutive quarters shows that lending continues to be responsible and customer focused.”
Cash Remains King
Elsewhere, Dale Jannels, MD at Impact Specialist Finance, spoke with confidence about the sector’s broader performance in general. He suggested that while competition remains ferocious on the UK housing market, consumers will be compelled to consider alternatives to conventional mortgages.
“This latest Bridging Trends Report highlights more than ever that cash is king,” he said.
“This applies to homeowners wishing to get their offer accepted before they have sold their own property, as well as investors wanting to raise funds quickly to invest in stock or refurbish existing to achieve better yields for example,”
“The shortage of suitable housing stock will undoubtedly drive increased volumes in the bridging sector for the foreseeable future.”
Bridging finance effectively gives homebuyers the spending power of a cash buyer, enabling them to opt out of traditional property chains entirely.
A move that can be beneficial in a variety of ways, as explained by Toto Lambert, a partner in Knight Frank’s Chelsea office.
“Being a chain-free buyer means that there are fewer hurdles to jump over when buying a home. The longer a property chain is, the greater the possibility of a transaction falling through, as you are reliant on other people’s property sales and therefore other people’s problems,”
“Being a chain-free buyer also means that you can often offer a greater level of flexibility if required, for example timescales to exchange and completion,”
“Flexibility can help in the initial negotiations with a seller and may put you in a favourable position, particularly if there are multiple parties interested in the home you want to buy.”