According to the latest Bridging Trends report, there has been a 45% reduction in bridging loan volumes in the first half of 2020, as a result of Covid-19 lockdown restrictions.
It has been reported that over the six month period, bridging loan volumes declined by £167.88m to £202.26m, in comparison to £370.14m of transactions in the same period of 2019.
The loan volumes of contributors to the Bridging Trends data was £122.86m in the first quarter of 2020, declining significantly from £180.94m in the final quarter of 2019. It has also been recorded that activity further decreased in the second quarter to £79.4m.
Second charge lending culminated to the highest level since 2015 when Bridging Trends launched, accounting for an average of 26.1% of total market volume in Q2 2020. This data is up from 24.4% in Q1 2020 and 23% in Q4 2019.
In Q2 2020, regulated bridging lending hit a record high and elevated its market share to an average of 55.6% of all lending, in comparison to the 37.5% recorded in the same period of 2019. Since Bridging Trends launched, this is the first time that regulated transactions outperformed unregulated transactions.
It was also reported that in Q2 2020, the average weighted monthly interest rate increased to 0.85%. This figure is up from 0.8% recorded in Q1 and 0.75% in Q4 2019. Bridging Trends revealed that this is the highest monthly interest rate recorded since Q3 2016.
Average LTV levels decreased to 48.8% in Q2, from 51% in Q1 2020 and 54.1% in Q4 2019. It has been suggested that this could be a result of the number of bridging lenders removing high LTV products from their product ranges throughout the Covid-19 lockdown period.
Despite unexpected challenges, Bridging Trends also recorded that the average completion time on a bridging loan application has remained consistent throughout the last four quarters – reporting an average completion time of 50 days in Q2 2020, 49 days in Q1 2020 and 51 days in both Q4 and Q3 of 2019.
For the sixth consecutive quarter, purchasing investment property was the most frequent use of a bridging loan – accounting for 25% of all lending transacted by the report’s contributors in Q2 2020.
Gareth Lewis, commercial director at MT Finance, commented: “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.
“MT Finance has seen a definite increase in second charge loans as business owners continue to invest to help support their business.”
Stephen Burns from Adapt Finance, said: “Gross lending showing a decrease was inevitable. However, the amount of change is staggering despite lockdown.
“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.”
Sirius Finance’s Craig Booth added: “We cannot be surprised at decreased lending and a higher rate average, the first inevitable and the second 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, concluded: “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.”
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