The UK’s bridging finance sector held steady throughout Q2, achieving modest growth on Q1’s impressive overall performance. According to the latest Bridging Trends report from MT Finance, total bridging activity during the second quarter increased to £146.5 million from £144.5 million in the first quarter.
The report indicated that the vast majority of lending activity taking place during the quarter was made up of first-charge loans. MT Finance revealed that 90% of total market volume was made up by first-charge lending activity, an increase of more than 12% from the previous quarter.
The period’s impressive performance was credited in part to the number of landlords and investors looking to take advantage of the temporary stamp duty holiday. Investment property purchases remained the number-one application for bridging finance, accounting for almost 25% of all loans issued.
Chain break accounted for around 20% of all transactions, making it the second most popular bridging finance application during the period.
The report also indicated that the average bridging loan terms for Q2 were around 12 months, which is the same as the previous quarter.
The commercial director at MT Finance, Gareth Lewis, indicated no real surprise at the sector’s strong performance this year so far.
“As purchases would have been at the top of people’s minds due to the stamp duty saving, it’s no surprise to see that first charge lending has significantly increased its share of transactional volumes,” he said.
“It will be interesting to see if this percentage decreases in the coming months as consumers look to raise financing out of existing properties to fund further property acquisitions or businesses.”
Evidence of growing confidence in the UK property market
His sentiments were echoed by Chris Whitney, head of specialist lending at Enness, who commented on the generally positive outlook for the sector going forward.
“It looks like we have reached quite a stable platform over the last two quarters. Any previous pandemic worries seem to have been put to one side with the stamp duty holiday deadline, creating a frenzy of activity. The higher level of investment purchases shows confidence in the UK property market is strong,” he said.
“I am slightly surprised that lending volumes weren’t higher. The market certainly felt very busy as we struggled to get values out in a timely manner due to volumes, and many a solicitor had to burn the midnight oil to keep up with demand.”
Meanwhile, bridging and development finance specialist for Brightstar Financial, Stephen Watts, spoke of the significance of lenders and brokers streamlining application processes to reduce loan completion times.
“Some lenders are now offering automated valuation models up to 75 percent loan to value (LTV) in some circumstances, and with the ability for asset managers to benefit from modern technology and carry out virtual client meetings, more loan applications are benefiting from these time-saving factors,” he said.
Meanwhile, bridging and development finance specialist for Brightstar Financial, Stephen Watts, spoke of the significance of lenders and brokers streamlining application processes to reduce loan completion times.
“Some lenders are now offering automated valuation models up to 75 per cent loan to value (LTV) in some circumstances and with the ability for asset managers to benefit from modern technology and carry out virtual client meetings, more loan applications are benefitting from these time-saving factors,” he said.
Defying all projections, the UK’s property market has enjoyed a stellar year; average house prices have broken all records, monthly sale completions are at an all-time high and demand continues to outstrip supply in all regions of the UK.
Competition for desirable properties has become ferocious on an unprecedented level. Consequently, those who encounter delays or disruptions during the purchase process are often finding themselves being beaten to the punch by rival buyers.
With demand at an all-time high, lenders are finding themselves with inevitable backlogs and bottlenecks to deal with. Mortgage completion times have been on the up for much of the past year, making it difficult for would-be buyers to take advantage of time-critical opportunities.
One of the many reasons why bridging loans have become a popular choice for homeowners is because it is a flexible and cost-effective option for preventing their property purchases from falling through.
Bridging Loans for Faster Property Purchases
To put the benefits of bridging finance into context, consider this typical everyday example:
You have been scouring the market for a new home when you find your dream property at an unbeatable price. It is well within your budget, but you have not yet found a buyer for your current home. This is where bridging finance can help, it can be secured against your current home and repaid in full when you sell it.
Bridging loan completion times typically average just two weeks. The loan is secured against your current home, providing the fast-access funds you need to buy your new property, after which the loan is repaid in full a few months later using the proceeds raised from selling your former home.
With monthly interest rates starting from less than 0.5%, bridging loans can be far more affordable than any comparable loan or mortgage.
The same benefits also come into play in the event of a home sale that falls through at the last minute. It could be that you have a buyer lined up for your home and everything seems to be in place, only for them to pull out unexpectedly at the worst possible time.
Rather than such a scenario costing you your dream home, an affordable bridging loan could be used to buy your new property.
A Reliable Exit Strategy
As bridging finance is designed to be repaid as quickly as possible, it should only be considered with a reliable exit strategy in place. If you are 100% confident that your current home will be successfully sold within a few months, the facility could be surprisingly affordable.
Bridging finance is not a viable option for long-term borrowing; monthly interest rates of less than 0.5% are highly competitive in the short-term, but could prove costly if the loan remains unpaid for some time.
If interested in using a bridging loan to help you purchase your dream home, we can help. Contact a member of the team at UK Property Finance anytime for an obligation-free consultation.
Having successfully broken the £100 million barrier in June, the UK’s second-charge lending sector is back to its pre-pandemic norm. According to the latest figures published by Loans Warehouse, total second-charge lending activity hit just over £104 million last month, which is the highest rate since the COVID-19 crisis began.
The report from Loans Warehouse painted a predominantly positive picture for the second-charge sector, with the slight exception of an increase in completion times. Due to the applications involved in processing such high volumes of applications, the average second charge completion time in June was 17 days.
“The second charge lending market has now officially hit pre-pandemic levels of lending and surpassed the £100m barrier,” commented Loans Warehouse managing director Matt Tristram.
“With figures reported directly to the Loans Warehouse Secured Loan Index in June from multiple lenders, second-charge lending totalled £104.3 million in June 2021, a post-pandemic high.”
“Lending increased 16% month-on-month and highlighted an incredible 365% record-breaking year-on-year increase, but let’s remember, this was one of the pandemic lows for second charge lending. A more realistic comparison would be lending figures from June 2019, which were all but identical to those from June 2021, with £105 million reported by the FLA.”
“This is also a landmark month, with Optimum Credit posting lending figures of £37.9m, which is believed to be the most lent by a single lender since the Credit Crunch of 2006!”
Better access to equity for more borrowers
Mr Tristram went on to highlight the effect high-equity loans have had on the sector as borrowers continue to enjoy access to high LTC loans for all purposes.
“One of the biggest impacts on mortgage lending during the pandemic has been on the level of equity available to borrowers. Second charge lending continues to offer an alternative method of raising capital for many; as such, we will have highlighted the split of lending over 85% LTV,” he said.
“In the year to date, we have now recorded £493 million in second-charge lending, and monthly new lending figures continue to improve.”
A recent opinion survey, published by The Association of Short-Term Lenders, indicates a positive long-term outlook for the bridging market and the UK economy as a whole. Following the budget announcement in early March, more than 73% of bridging finance providers remain confident about the long-term health of the economy, in comparison with just 64% recorded last July.
The survey shows that 87% of bridging lenders are expecting a significant increase in their business turnover over the next 6 months, with a 77% expectation that the wider bridging sector will achieve healthy growth in turnover too. These figures have shown a great improvement from the previous survey, where 36% of respondents predicted the sector as a whole to shrink, with 41% of bridging providers anticipating a decline in their own business turnover.
On the subject of competition between bridging loan providers, survey participants were divided in their opinion, with 47% believing competition will remain the same over the next six-month period and 43% expecting an increase. A mere 10% thought competition would actually decrease.
Vic J. (CEO) said, “This latest sentiment survey of the members is an important one as it gives us an opportunity to take a step back and reflect on the year we have been through”. The significant increase in positivity compared to last summer reflects not only the general optimism about the rollout of the vaccination programme but also the way that bridging lenders have been able to evolve and adapt to the changing environment.
“The sector is in a strong position to continue to support the recovery with fast, flexible short-term lending to meet the diverse needs of a range of customers.”
Specialist brokers operating within the bridging sector have noted a major spike in activity and interest among property developers. As a result, and for the first time since February 2019, development finance is back within the top five search terms within the bridging category.
According to Knowledge Bank, which recently revealed the top-performing search terms for January 2021, there has been a significant increase in the number of searches targeting ‘development bridging and, in particular, the maximum loan to GDV, i.e., the LTV against end value’. This suggests that bridging finance is being sought by construction companies and developers for major property development and redevelopment projects.
This was the first time this particular term had appeared within the top five in two years.
No change at the top
The top three search terms remained the same for January 2021, which according to Knowledge Bank were ‘maximum ‘LTV’,’regulated ridging’, and ‘regulated bridging’ and ‘minimum loan amount’; however, the order of the three top searches changed from the month before, suggesting a shift in priorities among applicants.
In the commercial lending segment of the market, the three most popular search terms, according to Knowledge Bank”, were semi-commercial’,’ maximum LTV for commercial investment’, and ‘minimum loan amount’. A new entry to the top five for January was ‘commercial owner-occupier’.
‘First-time buyers’ also made an entry to the top five searches conducted in the buy-to-let segment for the first time since February last year. The most popular search term in the BTL bracket was ‘lending to limited companies’, which, according to Knowledge Bank, reflects the growing number of landlords looking to set off companies prior to the planned punitive tax changes.
The importance of specialist broker support
Commenting on the data, Knowledge Bank highlighted the growing importance of seeking independent specialist support to access a competitive deal from a reputable lender.
“With the end of both the stamp duty holiday and furlough scheme [in sight], lenders are certain to continue adapting criteria to keep up with the evolving market,” commented Knowledge Bank’s operations director, Matthew Corker.
“It is now physically impossible for any mortgage broker to keep all the different criteria in their heads.”
“So, it is now more important than ever for brokers to use a comprehensive criteria search system to ensure they can provide their clients with the best advice and evidence that they have done so.”
As many bridging loan specialists in the UK operate exclusively via established brokers, their products are only available with broker representation. Comparing the market with the support of a broker can be beneficial in a variety of ways, including access to objective and impartial advice on the funding solutions available.
For more information on any of the above or to discuss the potential benefits of bridging finance in more detail, contact a member of the team at ukpropertyfinance.co.uk today.
With monthly interest rates hovering at an all-time low, there has never been a more cost-effective time to consider bridging finance.
Particularly where the funds are required quickly and for a major purchase or investment, bridging loans offer an invaluable lifeline for both private borrowers and commercial customers.
Getting a bridging loan as a homeowner
Accessing bridging finance as a homeowner is relatively straightforward and can be used for a wide variety of projects or purposes.
For example, one of the most common applications for bridging finance as a homeowner is to renovate a property before listing it for sale to achieve the maximum market value. Another use for bridging finance would be to prevent a chain break, enabling dream houses to be purchased before the sale of a current property has been finalised.
Bridging loans are also commonly used in the same way for downsizing. Buy a property at a competitive price with a bridging loan, repay the funds with the sales proceeds of your former home, and retain the remaining proceeds from the sale.
It is even possible to use bridging finance to upgrade or extend your current home before subsequently paying off the loan with a longer-term financial product (like a secured loan or mortgage) to repay the balance over several years or by sale once the work is complete.
Provided you have sufficient equity in the security being offered, you should be accepted for bridging finance. Even if your credit report is imperfect, this will not necessarily prevent you from accessing a competitive bridging loan.
Getting a bridging loan as an investor
Bridging finance is increasing in popularity as a popular purchase tool for investors. As conventional mortgage products and high-street loans become increasingly difficult to access, the flexibility of bridging finance gains further appeal.
Investors looking to purchase properties in London often have limited time to make decisions and access the funds needed. Particularly when it comes to last-minute property purchases like those at auction, waiting weeks or months for a mortgage to be formalised simply is not an option.
In this scenario, bridging finance can help, as it can be secured against any viable property the investor owns, and the finance can be arranged within a matter of days. Whether looking to ‘flip’ a property purchased in poor condition for a profit once renovated or to purchase and resell an auction property of any kind, bridging finance holds the key to fast and affordable investments in London.
In both instances, the main requirement that must be fulfilled is ownership of acceptable property. A bridging loan can be secured against almost any type of residential or commercial property, often irrespective of type, purpose, and even condition.
Ensuring you get the best possible deal means shopping around with the help of an experienced broker, who compares the market in its entirety on your behalf. Always remember that many specialist lenders work exclusively via established brokers, meaning their products and services are not available directly to the public.
For more information on any of the above or to discuss your requirements in more detail, book your obligation-free consultation with UK Property Finance today.
Almost every arm of the financial services sector in the UK was adversely affected by COVID-19 last year. The bridging finance segment was no exception, which, according to the latest figures from Bridging Trends, fell by £278 million compared to 2019.
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In total, bridging loans valued at £455 million were provided by the lenders incorporated in the Bridging Trends annual survey, down from £732.7 million in 2019, or 38%.
Q1 saw total bridging finance transactions hit just under £113 million before experiencing a major fall to just £79.4 million in Q2. Transaction volumes increased significantly in Q3 to reach approximately £115.5 million and climbed to £137.2 million during the last three months of the year.
Regulated vs. unregulated bridging loans
Interestingly, 2020 bucked the trend of previous years by recording a near-identical split between unregulated and regulated bridging transactions. Regulated bridging loans accounted for 36% and 39% of transactions in 2018 and 2019, respectively; last year’s regulated market share was 49.4%.
Borrowers typically found themselves paying more for bridging finance during the first half of the year. According to Bridging Trends, average interest rates during the first three months of 2020 were 0.8% per month, increasing to 0.85% per month in the second quarter. This was followed by 0.87% in the third quarter and a fall to 0.72% in Q4.
The average LTV on bridging loans issued last year was down somewhat compared to previous years, which were recorded at 55.6% in 2018, 52.9% in 2019, and 50.7% in 2020.
An optimistic outlook
With interest rates hovering at all-time lows and activity levels once again returning to normal, the immediate outlook for the bridging sector has been called encouraging by most, with some suggesting that the current positive performance could extend far beyond the looming stamp duty holiday deadline.
“The impact of the pandemic on the bridging sector is shown clearly in Q4’s data, but it also alludes to the activity we are now experiencing, some of which, but not all, is related to the stamp duty holiday deadline.”
“It’s clear though that bridging finance is becoming better understood by the wider broker market (not just those in the specialist sector), and there is more confidence about the options it can provide customers, which should mean that 2021 could see a real watershed moment for this type of finance.”
Some have shown surprise that such a buoyant sector experienced such a dramatic decline in the first place, with comments such as:
“I am surprised that the fall in lending in 2020 was so great. The market has always ‘felt busy’ and we did not see such a big drop in volumes.”.
“Some big names in bridging closed their doors, and some are still not back as they were; however, most of the short-term lending market either carried on throughout or paused only temporarily as working practices were refined and made fit for purpose under the restrictions we faced.”
“The absence of some big names reduced supply, and coupled with restricting loan to value, this has had a marked impact on lending levels, which is also reflected in the fall in average loan to value over the year. However, as the trend in Q3 and Q4 indicated, we believe volumes will bounce back quite quickly, and with people re-entering the market, the data is reflecting the stiff competition lenders face for business in terms of lower interest rates.”
For some, lockdown provided the perfect opportunity to take stock of what matters and appreciate their homes in an entirely new way. For others, the whole situation made it abundantly clear that they simply were not happy with where they lived.
COVID-19 has forced millions to revisit what we expect, what we want, and what we need from our homes. Particularly with more people than ever now working from home on a semi-permanent basis, many homeowners are struggling with the space they have available.
In which case, there are two primary options to choose from: relocate or renovate. both of which can be advantageous in their own unique ways.
Relocating in the current climate
While COVID-19 has brought about inevitable obstacles and challenges for those considering relocation, there is also one major home-buying benefit to consider right now. The temporary stamp duty holiday introduced by the chancellor has removed all stamp duty liabilities for anyone purchasing a property with a market value of £500,000 or less.
This amounts to a significant discount on the overall purchase price for most buyers until March 31 next year.
In addition, lenders in general are currently willing to accept relatively low down payments of 10%–15%. Although some continue to demand 20% or even 25%, there are affordable options available for movers and first-time buyers alike.
Comparing the market with the help of an independent broker is essential to getting the best possible deal in the current climate.
Renovating your existing home
Of course, there are many instances in which conducting renovations and home improvements could be more cost-effective than relocating. For those considering renovating their existing home, experts advise first establishing whether the structure of the property is suitable for the proposed alterations.
This will typically mean arranging an inspection and survey of your property and having an independent contractor look at and guide you through the options available.
Some smaller extensions may not require planning permission, though it is still advisable to make the necessary inquiries to ensure you do not contravene restrictions in your area.
Funding major home improvements and renovations has the potential to be easier and more affordable than obtaining a conventional mortgage. By securing a property development loan against the value of your home, you will have access to competitive rates of interest and low overall borrowing costs.
Compare the market
Whether you have extensive renovations in mind or are considering relocation, we can help you find the best possible deal to suit your objectives and your budget. At UK Property Finance, we work with an extensive network of specialist lenders across the UK, scouring the market in its entirety to find unbeatable deals on all types of mortgages and home improvement loans.
For more information or to discuss your requirements in more detail, contact a member of the team at UK Property Finance today.