1 in 4 Q4 Bridging Loans Used to Break Property Chains, MT Finance Reports
The bridging finance sector in the UK endured a turbulent 2020, recording a decline in annual transaction volumes of approximately £278 million. According to the latest figures released by MT Finance, the sector saw particularly poor performance during the first six months of the year, when lockdown restrictions took a toll on the country’s entire financial services sector.
Performance improved towards the end of the year, at which point an interesting trend was also noted in the firm’s report. In the fourth quarter, approximately one in every four bridging loans was used for the purpose of breaking property chains by homeowners.
The report also found that the most popular reason for taking out a bridging loan during the first nine months of the year was to make an investment purchase. Regulated bridging loans accounted for just over 49% of all bridging loans issued – a significant increase from the 36% and 39% recorded in 2018 and 2019 respectively.
Bridging Loan Applications Up, Interest Rates Down
In total, the sector recorded is 38% annual fall in combined bridging transactions – £455 million compared to £732.7 million the year before. This was attributed to the effects of lockdown restrictions on the market, along with some lenders halting new loan transactions entirely during the height of the initial lockdown.
Things had, however, started to improve significantly by the fourth quarter of the year. Q1 lending totals reached £112.86 million, before falling to just £79.4 million in the second quarter. Q3 and Q4 made for far more reassuring reading, with total bridging transactions reaching £115.52 million and £137.22 million respectively.
As application volumes increased, average monthly interest rates fell once again to hover around all-time lows. By the end of the year, the average rate of interest payable on a bridging loan was just 0.72% – significantly lower than the 0.85% average in Q2.
A Positive Outlook Ahead
Speaking on behalf of MT Finance, commercial director Gareth Lewis mapped out his own positive outlook for the future of the sector in 2021.
“After the first lockdown, we saw the re-emergence of some larger lenders and if you combine this with the stamp duty changes, it is no surprise that there was a stimulus on rates and regulated bridging in the latter part of the year,” he said.
“As the vaccine rolls out and we gradually emerge from this lockdown, I believe we will see a new transactional flow from renewed confidence in the economy and businesses re-establishing themselves.”
Meanwhile, head of specialist lending at Enness, Chris Whitney, expressed surprise at just how dramatic the decline in activity had been throughout the year.
“I am surprised the fall in lending in 2020 was so great. The market has always felt busy and Enness did not see such a big drop in volumes,” he commented.
“Some big names in bridging closed their doors and some still are not back as they were. However, most of the short-term lending market either carried on throughout or paused only temporarily as working practices were refined and made fit for purpose under the restrictions we faced,”
“The absence of some big names reduced supply and coupled with some restricting LTVs, this has had a marked impact on lending levels. This is also reflected in the fall in average LTVs over the year.”