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Bridging market sees 45% drop in loan volumes and a rise in re-bridging

Bridging Trends(1)

The bridging market has witnessed a 45% fall in gross bridging loan volumes in the first half of the year as activity is dented by the Covid-19 lockdown, according to the latest Bridging Trends report.

In the six months to the end of June 2020, bridging loan volumes declined by just under £167.88m to £202.26m, compared to £370.14m of transactions in the first half of 2019.

Contributor bridging loan volume stood at £122.86m in Q1 2020, falling sharply from £180.94m in Q4 2019.

Activity then further reduced in Q2 to £79.4m, primarily due to the disruptions caused by the Covid-19 pandemic.

Refinancing a bridging loan was the second most popular use for bridging finance, contributing to 13% of all lending in Q2 2020, up from 8% in Q1 2020 and 11% in Q4 2019.

Regulated bridging lending hit a record high in Q2 (55.6% of all lending), which is the first time it outperformed unregulated transactions since Bridging Trends launched. 

Second-charge lending also peaked to a record level, accounting for an average of 26.1% of total market volume in Q2 2020. 

The average weighted monthly interest rate in Q2 2020 increased to 0.85% — up from 0.8% in Q1 and 0.75% in Q4 2019. 

This is the highest average monthly interest rate recorded in Bridging Trends data since Q3 2016.

In addition, average LTV levels decreased to 48.8% in Q2 from 51% in Q1 2020, which could be attributed to the number of bridging lenders removing high LTV products from their product ranges during the lockdown period.

“We are presently living through unprecedented levels of uncertainty and the drop in bridging transactions is not wholly unexpected, given the restrictions on conducting physical valuations until May, servicing challenges, and significant uncertainty around any possible economic downturn,” said Gareth Lewis, commercial director at MT Finance.”

“MT Finance has seen a definite increase in second charge loans as business owners continue to invest to help support their business.”

Bridging industry responds to latest data

Stephen Burns at Adapt Finance, commented that the decrease in gross lending was “inevitable”.

“However, the amount of change is staggering despite lockdown,” he added.

“Regarding the rise in re-bridging — this is due, no doubt, to certain existing lenders acting disappointingly as if lockdown didn’t happen and refusing to support any additional term. 

“These are some very interesting results, but I am particularly surprised to see regulated transactions take over unregulated.”

Craig Booth, associate at Sirius Finance, said the industry cannot be surprised by the drop in lending and a higher rate average, with the latter due to “changes in risk”.

“What is surprising is the re-bridging of a bridging loan increase. 

“Supporting existing clients should be just as important as new business in challenging markets.”

 Dale Jannels, manging director at Impact Specialist Finance, stated: “We have all seen the huge impact on the markets from the last five months.  

“But since restrictions started to ease, we’ve seen a large influx of enquiries for short-term lending, especially relating to refurbishment, development and upsizing/downsizing (where the client needs to secure their next property, but have not sold the current one). 

“There have been some fantastic deals engineered and the bridging lenders really do appear to have a huge appetite to assist all different types of clients and scenarios.”

Source: Bridging & Commercial, August 13 2020.

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