For the third consecutive quarter, the most popular use of a bridging loan was to purchase investment property, according to Bridging Trends data.
The study highlights how property investors and homeowners continue to opt for fast and flexible bridging loans to purchase property while prices are low.
It found almost a quarter (22%) of lending was for investment purchase purposes, down from 25% during Q2 2019.
A traditional chain-break was once again the second most popular use for bridging finance, contributing to 20% of all lending in Q3, up from 18% in Q2 2019.
Meanwhile, bridging loans for business purposes fell from 12% to 6% in the same period.
Bridging Trends groups together the figures from lender MT Finance and specialist finance brokers Brightstar Financial, Capital B, Clever Lending, Complete F5, Enness, Impact Specialist Finance, Positive Lending, Y3S and UK Property Finance.
The findings confirm bridging loan growth weakened in the third quarter, with bridging loan volume transacted by contributors hitting £181.64 million – a £3.2 million decrease on the previous quarter (£184.82 million).
What’s more, 42% of total loans transacted by Bridging Trends contributors were regulated, up from 37.5% in Q2 2019.
The spike in regulated bridging activity translated into a lower average monthly interest rate in the third quarter (0.74%), representing a decline of 0.05% on the previous quarter.
Demand for second charge loans remained consistent at 18.4% (down from 18.8% in Q2 2018), while average loan-to-value levels increased by 0.02% in Q3 to 53.1%.
For the fourth consecutive quarter, the average term of a bridging loan remained at 12 months, while the average completion time on a bridging loan application in the third quarter rose by seven days to 51.
Gareth Lewis, commercial director at MT Finance, says the findings have prompted many property investors to use the speed of bridging loans to act swiftly on opportunities.
He comments: “With the EU deadline now extended, it would be reasonable that we’ll see the same trends continue throughout the rest of the year.”
Andre Bartlett, director of Capital B Property Finance, adds: “We are still seeing strong demand for regulated loans for chain breaking etc for good clients, at low LTVs. The appetite for lenders for these types of deals remains healthy and rates continue to be consistently low and the competition is still fierce.”
“The downside is average completion times for loans is heading in the wrong direction, but that may be due to matters outside of lenders' hands.”
Chris Whitney, head of specialist lending at Enness, says: “As it is a buyers’ market many get good purchase prices agreed on the basis they can complete within a relatively short space of time. This means that the demand for the quick and straightforward short-term loans is very strong.”
He says with average rates now just over 8.8% per annum, cost of funds is no longer a barrier to using a bridging loan, and is in fact ‘knocking on the doors’ of some of the more expensive lenders’ commercial term loan pricing.
He concludes: “All in all, the bridging loan market continues to be strong and supporting the UK economy in many ways during difficult times. And we aren’t out of the woods yet."
Bridging Trends' full infographic can be seen below: