High street woes propel bridging towards peak

The bridging sector is forecast to hit £1.5bn by the end of the year, although some believe the market is close to its peak.

Last week West One Loans claimed the value of the industry has broken the £1bn barrier for the first time and is set to reach £1.5bn by the end of 2012.

Its quarterly bridging index found gross lending in the 12 months to March 2012 rose sharply to reach £1.1bn – 21% higher than in the 12-month period from January 2011 to January 2012.

It says the increase is being driven by a surge in lending to property investors.

Richard Farr, director at Telos Solutions, says some commercial lenders have reined in their lending so he can understand how bridging lenders might benefit from that gap in the market.

But he adds: “Even if the bridging market is valued at £1bn, it is still a small niche part of the market and you cannot solve a lack of funding through bridging.

“So if it is worth £1bn now, I’m sure nobody would predict it will be worth £2bn in two years’ time. We must be getting close to the full size of the market and the question is how much further can it go.”

Duncan Kreeger, chairman of West One, says a big funding gap has been created by high street lenders’ problems with growing funding costs and capital requirements, and heavy exposure to toxic assets.

He adds: “As a result, the high street cannot cater for the demand from investors for residential loans. It has created a gap between supply and demand that could become even wider if the economy fails to recover with any conviction.

“Net mortgage lending will only be around £5bn this year. The main market is still crippled and if the eurozone crisis worsens, mortgage lending could enter a state of near-paralysis.