£2 Billion Lending Record for Bridging Industry

  • Industry consolidates expansion with gross bridging lending of £2 billion in 2013
  • Annual lending growth is driven by extra projects, with the total number of loans up by a third
  • Bridging interest rates reach record lows, averaging 1.11% over two months to 1st January

Gross bridging lending totalled £2.0 billion in the twelve months to 1st January, up 3.3% from the annual figure in November 2013.

This brings annual growth in gross bridging lending to 27% – up from £1.57 billion in gross bridging lending in 2012.

In the two month period from 1st November to 1st January 2014, industry gross bridging lending was £419 million, up 5.5% from £397 million in the previous two months.

If lending continued at this rate for a year, gross lending in the next twelve months would be £2.51 billion per year.

Duncan Kreeger comments: “Economic progress feels more solid by the week, and it’s branching out across every area of business. By securing vital projects against property, firms and individuals stand to make the most from a year of great opportunity.

“Bridging has grown up from the industry it once was, and it’s still evolving in 2014. Lenders are expanding and opening their doors to different types of borrower. An economy on the move needs rapid finance that can really get projects started – and short-term secured lending is moving to fill that gap.”

Trends in the Bridging Industry

The most significant factor powering the expansion of gross lending is growth in the number of deals agreed.

Industry loan volumes during the two months ending 1st January increased by 10.8% compared to the previous two month period. This brings loan volumes for the whole of 2013 to levels one third (33%) higher than the preceding twelve months.

Meanwhile, the average value of a bridging loan was largely static. The average loan is now worth £459,000, representing a slight drop of 1.4% from the two months ending 1st November.

On an annual basis, loans in 2013 were larger than the previous twelve months, in line with the long term trend. For the last twelve months as a whole, loans averaged £430,000, or 5.2% more than the average loan in 2012.

Duncan Kreeger continues: “Just a few years ago the average bridging loan was worth half what it is now. Since then, the biggest transformation has been a growing interest from bigger property developers, professional investors and small businesses looking for more significant funds.

“The last few months have seen growth focused on volumes as enquiries are coming in thick and fast. But the long-term trend in terms of loan sizes is also moving upwards. Multi-million pound deals aren’t uncommon anymore, and as 2014 unfolds, even the most ambitious ideas are becoming ever more possible.”

Loan to Value Ratios

Loan-to-value ratios across the bridging industry have risen by almost one percentage point in recent months. In the two months to 1st January the average LTV was 48.1%, or 0.9 percentage points higher than LTVs of 47.2% in the previous two month period to 1st November.

On an annual basis loan to value ratios are still lower than previous highs. The average LTV across all twelve months of 2013 was 46.4% – down from 48.0% in 2012.

Duncan Kreeger comments: “Proper underwriting and a “safety first” approach have always been cornerstones of the best bridging lenders. Higher LTVs are completely consistent with that principle, but as properties grow in value more gearing is not always necessary.

“There is certainly space to lend at higher loan ratios this year, and the industry definitely has capacity to fund bigger loans where needed. Just as business and investment opportunities are opening up, the property market is putting the pedal to the floor. Alongside rates that look set to stay low for some time, slightly higher LTVs could mean more projects will have access to the finance they deserve.”

Bridging Interest Rates

As a whole, 2013 witnessed the lowest interest rates on record for the bridging industry, averaging just 1.19% across the entire year. This compares to 1.37% in 2012 and an average interest rate of 1.55% in 2010, the first year of the West One Bridging Index.

On bi-monthly basis, rates have also fallen to a record low. In the final two months of 2013, bridging loans cost on average 1.11% per month, down from 1.22% in the two months ending 1st November.

By comparison with other asset classes, potential returns for those funding bridging loans remain several times the total return of mainstream investment classes. Monthly product rates currently stand at 4.5 times those of 10 year government bonds, with a monthly spread of 0.87 percentage points.

Mark Abrahams, CEO of West One Loans, concludes: “Nearly seven years on from the financial crisis, markets are still shaking with volatility.

“Equities of all kinds are far too risky to form a large portion of most investors’ portfolios, and most fixed income products are set for years of trauma as central banks begin to wind up artificial bond-buying programmes like quantitative easing.

“As mainstream lenders already feel the first withdrawal symptoms from artificial stimulus and special measures, money from normal investors will be more in demand in 2014. And from a lending perspective, that will also be a serious advantage for privately funded lenders.”

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Bridging Industry to hit £2.7 Billion in 2014

• Brokers expect gross bridging lending to hit £2.7 billion in 2014
• Bridging industry set for fresh record – with gross lending set to grow by a third in 2014
• Intermediaries expect even lower rates on bridging loans in the New Year

Gross bridging lending in the UK is expected to surpass £2.7 billion over the course of 2014, according to a survey of over 250 financial intermediaries.

This represents annual growth of a third (33%), bringing the industry to a new record high, according to the latest West One Broker Sentiment Survey.

Expansion will bring gross bridging lending to over £2.7 billion over the course of 2014, after gross lending of £1.93 billion in the twelve months to 1st November.

Lending in 2014 will be more than three times greater than total lending in 2011, when gross bridging lending totalled £0.91 billion.

Duncan Kreeger, director at West One Loans comments: “Bridging loans provide crucial support for credit-worthy borrowers and great ideas. In a warming economic climate, that support is vital for growth.

“Bridging has grown up over the course of the recession – just as most mainstream lenders have wandered into troubled waters. Now that the economy is picking up, all forms of alternative finance are steaming ahead – and bridging in particular is making the most of the competitive advantage won in the dark days of recession.

“Looking at the figures so far this year, brokers’ expectations are looking pretty spot on. And 2014 looks particularly exciting given how accurate the same predictions from intermediaries were a year ago.”

Loan to Value Ratios to Rise

Brokers expect loan to value ratios in the bridging industry to rise in 2014. The net proportion of those expecting higher LTVs, minus those expecting lower LTVs, has hit a record high – with a net 38% expecting higher loan to value bridging loans. The latest West One Bridging Index shows average LTV currently stand at 42.8%.

Duncan Kreeger concludes: “Higher LTVs will allow bridging lenders to lend on more ambitious projects. Bridging loan sizes have already doubled on average since 2010 – but most recently LTVs have been falling as property has risen in value. That has left plenty of capacity for larger loans, which will be realised over the next twelve months.

“This expectation confirms that loans will keep growing next year, making more use of increasingly valuable security.

“Larger loans are particularly great news for the biggest deals in both the property and small business markets, which rely on rapid access to considerable finance.”

Bridging Interest Rates to Fall

Bridging interest rates are expected to fall over the course of 2014. A net proportion of brokers expect lower rates in twelve months’ time compared to prevailing conditions in November.

This comes as the latest West One Bridging Index shows rates averaged 1.22% in the year to 1st November, down from 1.38% in the previous twelve months.

However, in line with wider financial conditions, expectations for bridging interest rates have revealed a turning point. A net 27% of brokers expecting lower bridging product rates in November compares with a net 49% expecting rates to continue falling in March. November’s figure represents the slimmest majority of brokers expecting lower rates for one year.

Duncan Kreeger concludes: “For around half the price of borrowing on credit cards, businesses and individuals can access loans of up to millions of pounds via the bridging industry. That’s ideal for the most economically vital projects – in need of significant sums for short periods of time.

“While the wider economy struggles to balance recovery with rising interest rates, bridging continues to grow more useful and more affordable.”

LSL / ACADATA ENGLAND & WALES HPI

House prices up £11,219 from a year ago, fastest rate in three years

  • Prices rise by £1,400 in November, reaching new record
  • On an annual basis prices increase in all regions for the second consecutive month
  • By the end of 2013 sales set to be 16% higher than 2012

 

House Price

Index

Monthly Change %

Annual Change %

£238,839

243.2

0.6

                     4.9

David Newnes, director of LSL Property Services plc, owner of Your Move and Reeds Rains estate agents, comments: “The housing market is almost unrecognisable from twelve months ago. Not only have average prices climbed to a new record high – with an annual rise of £11,219 and a monthly increase of £1,400 – but we’ve seen an increase in every region for the second month running – a true sign that the nationwide recovery is really taking off. The LSL house price index incorporates all transactions including cash.

“Competition is strong through rising demand and supply of new instructions not growing , a factor that will continue to prop up prices in the long term. Confidence is higher throughout the market, with the Help to Buy scheme and record low interest rates contributing to the positivity. Over the second part of this year, consumer confidence has snowballed as the economic picture improves, leading to a significant rise in sales. The increased availability of mortgages, in part thanks to the government’s schemes, and the greater range of mortgage deals on offer has swung open the door to a new host of first-time buyers, making the distant dream of homeownership now a reality for thousands.

“Strong headway is finally being made towards a universal recovery. All ten regions in England & Wales experienced positive movement in prices on an annual basis for the second time in three years. Annually prices have increased in over 80% of local areas up and down the country – the highest percentage since September 2010. The trajectory is clearly upwards. Record high house prices have not only been recorded in the capital, but also in areas of the South East including Oxfordshire, Hertfordshire and Cardiff.

“However, there is still uneven growth in property values across the country. London prices continue to race ahead in a different gear with 9.2% annual growth in the capital vastly outshining the rest of the UK. Between August and October sales in London were up 27% on the same three months in 2012, reflecting intense demand for properties in London, both from domestic and abroad.

“In his Autumn Statement the Chancellor unveiled plans to unleash a further £1 billion to unblock housing development to address the critical shortage in supply. This will play a role in preventing prices rising too far too fast. But this is only the beginning, and it’s vital that house building is given greater attention in 2014 and beyond, in order to ensure the recovery rolls forward at a sustainable level.” 

Growing numbers of owner occupiers turn to bridging loans as mainstream banks struggle to increase capital buffers

Tough rules on lending are already hitting millions trying to get a mortgage and many borrowers are turning to the bridging industry for help, according to short-term secured lender West One Loans.

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Britain’s mortgage drought has seen the proportion of bridging customers – traditionally landlords, developers and businesses – who are owner-occupiers increase. In February 2012, owner occupiers represented 16.0% of bridging loan customers, according to mortgage brokers polled by West One Loans. That has now climbed to 18.2%.

Mainstream lenders’ ability to lend is already being hobbled as they have to increase their capital reserves.

But the Bank of England’s Financial Policy Committee has now told banks to raise even more capital to build up their capital buffers, to cover the risk of losses on loans to borrowers who may struggle to repay – meaning they have even less money to lend to borrowers.

Duncan Krieger

Duncan Kreeger

Duncan Kreeger, chairman of peer to peer bridging lender West One Loans said, “The problem is that the mainstream mortgage market isn’t doing its job properly. Five years into the credit crunch, residential lending is still a fraction of what it was during the boom as banks desperately shore up their capital reserves. Households can’t get the credit they need from the high street banks and as a result, more owner-occupiers than ever are turning to bridging. And if banks are forced to redouble their efforts to raise capital, the squeeze on high street lenders will tighten further. While a bridging loan is a very different beast to a long-term mortgage, in the right circumstances it can get things off the ground.”

The rise in the number of owner occupiers turning to bridging lenders for finance is reflected in the number or loans being taken out to refurbish properties. In February 8% of brokers listed purchase & refurbishment as the most popular use for bridging. This has now risen to 15%.

Duncan Kreeger continues, “There’s a huge housing shortage in Britain. There are many ways the government could solve the problem, from building on the Green Belt and liberalising planning regulations to turning up the heat on the redevelopment of brownfield sites or increasing taxes on second homes. At present none of these things are happening and, as a result, there are too few homes to meet demand. That’s keeping prices artificially high and pushing more and more people and developers to borrow from bridging lenders to buy dilapidated, inhabitable properties – which mainstream lenders won’t offer a mortgage on.”

“Despite the government’s best efforts, borrowers have found a way to overcome the obstacles in their path, by borrowing against value rather than purchase price and seeking alternative finance when a conventional mortgage cannot be arranged.”

While the Bank of England and Financial Services Authority say Barclays, HSBC, Lloyds and Royal Bank of Scotland will collectively need to raise between £5bn and £35bn of capital, peer to peer lenders like West One Loans match a pool of investors with individuals looking for short term secured loans.

Duncan Kreeger says, “Peer to peer lenders like us are becoming more and more important as traditional lenders fail to deliver. Rather than being backed by shareholders like HSBC and Barclays – or the taxpayer, like Lloyds and RBS – we are funded by private investors who back individual loans. That means we’ve been able to step up our lending while high-street banks languish.”

Brokers say they are writing 51% more bridging business compared to twelve months ago. Meanwhile, the West One Loans Bridging Index shows that in the third quarter of 2012, quarterly gross lending grew by 14% to £399m in Q3, up 65% from the equivalent period in 2011.

Duncan Kreeger concludes, “Mainstream lenders are being squeezed between higher capital adequacy requirements and the lack of confidence the money markets have in them. Although we only lend to landlords and developers who want commercial loans, the high street lenders’ pain has been our gain.”

Bridging business to grow 45% say brokers

• Business lending starting to drive growth, as 93% of brokers report more commercial lending

The latest West One Broker Sentiment Survey shows brokers expect an average of 45% more bridging business in the next 12 months.

Duncan Kreeger, Chairman of West One Loans commented, “Bridging looks set to expand steadily into 2013. A mild slowdown in the last quarter, as seen in our West One Bridging Index, indicated a moderation in the rate of growth. But these figures suggest a longer term pattern of consolidation. Brokers think bridging still has a long way to go, and this comes as traditional lending models have stumbled once again in August.”

71% expect their own bridging activity to grow in the next year. The number expecting the same amount of bridging business remained small at 26%. Those predicting bridging activity to shrink hit a record low of only 3%.

Brokers also said they expect product rates to ease down and LTVs to edge upwards.

More than twice as many brokers think product rates will go down as think they will increase. 18% of brokers surveyed expected a rise and 39% a fall in rates. 43% believed there would be no change.

Those who think LTVs will increase in the next year outnumbered those who expect a fall by two-to-one – at 25% and 13% respectively. 62% expected no change.

Duncan Kreeger said, “Brokers appear to agree with the conclusions we drew from the latest West One Bridging Index. Rates have risen from low levels at the beginning of 2012, but this increase is not expected to become a long-term trend. Equally, any indication that LTVs will rise means that the fall we recorded in the last quarter does not represent the start of any major upheaval. What is encouraging is that brokers aren’t forecasting any sort of major correction – either in product rates or credit availability. Such gradual changes are consistent with the increasing stability and maturity of the bridging market. Our early indications for September support this.”

Business lending driving growth:

The rate of growth in business lending (secured against a residential property) accelerated faster than any other part of the market. The number of brokers reporting growth in the sector was just 54% in February. Now 82% of brokers say they are seeing increased activity. Commercial bridging loans (to businesses and secured against commercial property) are a growing area for 93% of brokers.

Duncan Kreeger commented; “The government is keen to stress the importance of increasing business lending, but can’t put its finger on where the money should come from. While the economy has shrunk, the number of small businesses has boomed – according to BIS, 60% of private sector jobs now come from SMEs. More bridgers are lending to people who can demonstrate a real business case but are shunned by restrictive practices at high street banks. In May, Lord Young’s report identified peer-to-peer and asset-backed finance as possible sources of business funding. He hit the nail on the head.”

97% of brokers reported an annual increase in residential bridging, up from 64% in February.

State of the market in Q2 2012:

As a result of these changes, professional and amateur landlords now make up 25% and 13% of the market respectively. Owner occupiers account for 18%.

Business loans currently constitute 19% and those to developers 25%.

Overall growth averaged 46% in the year to August.

In the last year, 73% of brokers who write bridging loans have grown their own business. This figure was 63% in February. Numbers of brokers reporting falls in bridging activity are down to 6%, from the 9% at the start of the year.

first direct: Twice as many mortgage holders save rather than pay down their debt

Twice as many mortgage holders save rather than pay down their debt

Despite recent research showing that overpaying on a mortgage offers better longer term rewards than saving, twice as many mortgage holders save regularly rather than pay down their debt according to new research from online bank first direct.

A survey of 1022 UKmortgage holders1 found that 42% are saving regularly – double the proportion that regularly overpay on their mortgage (21%).

One reason for this could be a widespread lack of awareness among mortgage holders on the current details of their loan. Almost a third (31%) don’t know the interest rate on their mortgage, 43% don’t know the total cost of their mortgage including interest, and a quarter do not know whether or not they are able to overpay on their mortgage.

The top things mortgage holders are unaware of

  • The total cost of their mortgage including interest (43%)
  • The over payment limit on their mortgage (42%)
  • The interest rate on their mortgage (31%)
  • Whether or not they are allowed to overpay on their mortgage (25%)
  • The amount outstanding on their mortgage (15%)

Another possible explanation is that people value the flexibility of a savings account and are reluctant to pay down mortgage debt in uncertain times as they may need access to their money in unforeseen circumstances. While in reality, twice as many mortgage holders pay into a savings account as overpay their borrowing, when asked hypothetically how they would use any spare income, the most popular answer was overpaying their mortgage (48%), outstripping paying into savings (42%) and paying off credit card debt (33%).

Offsetting – The Best of Both Worlds

Research by the direct bank has found that by offsetting their savings against their mortgage debt, the average mortgage holder could reduce their mortgage payments by £28.25 per month while retaining access to their savings.2

Richard Tolchard, Senior Mortgage Manager at first direct, commented:

“People continue to try to put some money to one side and mortgage holders are no different in also wanting to pay down their loan. However, as this study shows, more often than not they choose to feed extra money into a savings account. This is where an offset mortgage can offer the best of both worlds, acting as a savings account and a way to reduce their net borrowing, as the customer keeps the flexibility to access their savings if they need them.”

Men More Aware of Mortgages

Men are more aware of every aspect of their mortgage except the amount of overpayment allowed on their mortgage for which they are equal.  The biggest knowledge gap between the genders is on the total cost of the mortgage which 63% of men said they know, compared with just 52% of women.

Young People Developing Good Financial Habits

Those in the 25-34 age bracket are the most likely to see the value of saving regularly as 86% of them either already do this or are considering it, compared with 62% of the over 55s. The younger age group is also the most likely to occasionally pay into savings (83%) and the older age group the least (66%).

Suggesting again that the 25-34 age group is conscious of money issues, they are the second most likely to overpay on their mortgage (22% compared with 24% of the 45-54 age group). They are also the most likely to be considering overpaying (51%) compared with 35% of the 35-44s, 33% of the 45-54s and 24% of the 55+ age group.

-Ends-

Notes to Editors

1 Research carried out by Opinion Matters between 22/12/2011 and 06/01/2012 among 1022 Mortgage Owners

2 Based on the average mortgage loan of £119,700(CML all loans for house purchase, lending and affordability) and the average savings balance of £8,401 (Research carried out by Opinion Matters between 26/11/11 and 9/12/11 among 2002UK adults). Offsetting estimate calculated using online Offset Calculator.