West One’s quarterly bridging index found gross lending in the twelve months from March 2011 to March 2012 rose sharply to reach £1.1bn, 21% higher than in the twelve month period from January 2011 to January 2012.
The increase is being driven by a surge in lending to residential property investors.
Gross lending in the first quarter of 2012 was £382m, 95% higher than in the first quarter of 2011, and 30% higher than the previous quarter. If the pace of growth continues along its current trajectory, gross lending in 2012 will hit £1.5bn, an increase of 68% from 2011.
The number of loans advanced in Q1 2012 was 74% higher than during the same period last year, reflecting the increasing appetite for bridging loans over the past twelve months.
The average loan size rose sharply from £342,000 in the first quarter of 2011 to £412,000 in Q1 2012, an increase of over 20%.
Duncan Kreeger, chairman of West One Loans, says a big funding gap has been created by the problems high street lenders are having with increasing funding costs, increasing capital requirements and heavy exposure to toxic assets.
He says: “As a result the high street simply can’t cater for the high demand from property investors for residential loans. It has created a huge 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.”
He says it has also seen plenty of evidence of investors using bridging loans even when they can access a buy-to-let mortgage on the high street.
He adds: “This may be just the start of a more pronounced shift in the way property investors choose to fund their projects. The figures back up that view: with gross lending set to reach over £1.5bn by the end of this year, the bridging is growing at a rapid pace.
“Property investors see bridging loans as an increasingly legitimate option.”