Despite dropping to £4bn in December, gross annual bridging lending made a recovery in Q4, according to new data.
A significant drop in lending was recorded in Q3 2016, with some analysts blaming the uncertainty engendered by the Brexit vote. Data from the Association of Short Term Lenders (ASTL) shows that gross lending figures for their members fell 17% to 613.1m from £742.6m in Q2. This decline is echoed in the figures for annualised gross lending for the total market, which fell to just over £4bn, according to the latest West One Bridging Index.
Yet, Q4’s overall figures show a more positive picture with the sector experiencing a solid quarter-on-quarter recovery that surpasses levels seen in Q1. According to the ASTL, there was a 26% increase in Q4 lending when compared to Q3.
Q3’s figures are said to have been impacted by the fact the smaller property investors appeared to step out of the market temporarily, thus reducing gross lending and driving an uptick in redemption volumes.
However, those smaller investors returned in Q4, as confidence slowly returned and liquidity came back out of the market, therefore aiding the significant recovery seen over the last quarter of 2016.
The value of a typical bridging loan rose from £798,198 in July to £1,189,574 in September, and then settled at £1,037,128 towards the end of the year. It has been reported that these figures demonstrate that while smaller investors may have been reticent in the aftermath of the Brexit vote, larger investors held steady.
Furthermore, the fall in interest rates throughout Q3 and Q4, following the Bank of England’s decision to cut Bank Rate to 0.25%, promoted strong competition in the sector, giving consumers better value as rates stayed below the 2% mark for more than 18 months.
Analysts have said that these record low rates, and the fact that demand for housing continues to outstrip supply, will mean that borrowers will continue to source alternative financing options. This will therefore benefit the stronger players in the market, who are able to be flexible enough to satisfy those borrowers with special circumstances and demanding timeframes.
Stephen Wasserman, managing director of West One Loans, said:
“In times of prolonged economic uncertainty, it is to be expected that there will be some sort of stagnation in the market, and Brexit clearly caused many people to stop and take stock in the second half of 2016. However, the sector ended 2016 with a significant recovery, showing the resilience of the market and giving us real cause for optimism in 2017. What’s imperative now is that the industry responds and makes diverse and flexible financing options available for property purchasers. The bridging sector in the UK has witnessed a 500% increase in activity over the last five years, and we’re confident the sector is well poised to continue growing in the next year.”
“With the upcoming changes in buy to let taxation, the buy to let market has seen a significant swing to buying new properties through Limited Companies and Special Purpose Vehicles. At West One, we’re seeing a similar uptick in customers taking out our bridging loans via Limited Companies or who are securing on semi-commercial property, which are both exempt from the new tax rules.
This not only shows the importance of bridging finance in supporting how property professionals finance their buy-to-let portfolios, but also the flexibility of bridging lenders to adapt to changing conditions. With some buy to let lenders already differentiating between 145% rental cover for individual and 135% for corporates, it’s clear that the buy to let market will be in a transition period in the year ahead, but bridging’s agility will serve the sector well in fitting to changing needs as they emerge.”
Danny Waters, chief executive officer of Enra Group added:
“Since the vote to leave the EU, there has been a great deal of discussion and mixed messages surrounding what this will mean for the UK property market. The truth is it is still far too early to give any meaningful analysis of what the result of the UK leaving the European Union will be but clearly some property investors became more cautious in the second half of 2016.
“However, economic volatility often brings opportunities and it’s crucial to recognise that in this climate, a ‘one size fits all’ model doesn’t work. There is a need for financing options to be tailored, bespoke and cater for the individual borrower’s needs. Bridging loans are a prime example of this, being a unique type of property financing that helps people to bridge a financial gap. We are seeing signs of the market quickly returning to growth, as people look for loans with the flexibility that only bridging and other specialist forms of finance can provide.”
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