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Bridging loan interest rates drop to lowest level as lending rises

Bridging loan interest rates fell to the lowest level in Q1 2019, according to the latest data from Bridging Trends.

It found the average monthly rate on a bridging loan fell to 0.74% in the first quarter of 2019, down from 0.80% in Q4 2018 – the lowest rate recorded by Bridging Trends since its launch in 2015.

This drop was driven mainly by the boost in regulated lending over the past three months, which increased for the first time since Q1 2018. The number of regulated loans conducted by contributors rose to 38.3% in Q1 2019, compared to 31.6% during Q4 2018.

This also led to lower loans-to-value (LTVs), with average LTV levels in Q1 2019 decreasing to 51.3% from 57% in the previous quarter.

What’s more, bridging loan volume transacted by contributors hit £185.31 million in Q1 2019, 8% lower than the £201.57 million in Q4 2018 but 20% higher than a year earlier (£154.02 million).

This comes as two new contributors join Bridging Trends – Impact Specialist Finance (previously AToM) and UK Property Finance.

The research also revealed the most popular reasons for borrowers taking out a bridging loan in Q1 2019 was for the purchase of an investment property, as investors continued to buy property despite a backdrop of uncertainty surrounding Brexit.

The second more popular reason for the chain-breaking purposes, accounting for 19% of all lending in the first quarter.

First legal charge lending dropped marginally to 81.7% of all loans during Q1 2019, from 82% in the previous quarter.

The average term of a bridging loan remained at 12 months during the first quarter. A completion time of 40 days during Q1 2019 was lower than an average completion time of 42 days during Q4 2018.

Bridging Trends is a quarterly publication that collates the figures from short-term loan lender, MT Finance, and specialist finance brokers – Brightstar Financial, Clever Lending, Complete FS Enness, Impact Specialist Finance, Positive Lending, Pure Commercial Finance, Y35 and UK Property Finance – to monitor the general trends in the UK bridging finance market.

Chris Whitney, head of specialist lending at Enness, commented: “As rates come down, short-term loans become a financially viable way of financing for more and more situations so actually increases business into the sector in my view.”

“It’s still surprising where in a market where some lenders seem to be fighting for market share by increasing LTV’s that the average LTV in the index is still only 51%.”

He added: “In terms of volume, I think we see more demand for higher LTV’s across the board, but the average LTV is possibly dragged down by larger transactions at low levels, i.e., we have just completed a £5 million facility against a £26 million asset.”

According to the Enness team, there has recently been a drop in service standards from buy-to-let lenders and loans are taking much longer to be agreed and complete. Borrowers are generally getting what they want but just not quickly enough.

Commercial director at MT Finance, Gareth Lewis, added: “Property investors are continuing to turn to bridging finance as a support tool, as reflected in the 22% utilising the product for investment purposes.”

“With highly professional specialist lenders offering flexible products at competitive rates, bridging finance has become an attractive proposition to those property investors who are looking to expand their portfolio and need certainty when conducting their business and who often need to move swiftly to capitalise on an opportunity."

The full Bridging Trends Q1 2019 infographic can be viewed here.

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