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Gross lending in bridging set to hit £1.5bn by year-end

The value of the bridging loan industry has broken the £1bn barrier for the first time and is set to reach £1.5bn by the end of 2012, according to West One Loans.

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.”

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  • Paul Rumbold 22nd May 2012 at 2:03 pm

    Another explanation might be that the figures are hugely exaggerated. If we were to believe all the claims made by the players in this industry, there would be bridging loans outstanding in the scall of the Chinese economy!

  • grey haired broker 22nd May 2012 at 10:35 am

    The only way you can explain away this huge increase in bridging finance is properties being purchased to hold are being funded with short term very expensive loans. Bridging lenders used to concentrate mainly on their “way out” when making a decision to lend. This is obviously not the case anymore.
    This is a recipe for disaster. The value of the under lying assets are decreasing and with the expected reduction in availability of long term funds due to the problems in the capital markets and the banks need to bolster their balance sheets property assets may well fall further.
    Non-owner occupied bridging finance can typically cost 1.5% per month with high in and out fees the actual rate being charged for a 12 months loan could well be in excess of 21%.
    With BTL lenders increasingly refusing ‘to take’ out bridging finance and the banks heavily restricting lending, refinancing the bridge at the end of the term could be very difficult. I can see large numbers of borrowers in trouble not to mention the problems created by bridging lenders holding large volumes of property which they are trying to shift into a falling market.
    With property investors being typically optimistic by nature and expensive short term bridging finance being readily available it will all end in tears.