Prior to its first incarnation last August, predicting the size of the market, and data sub-sets like average LTVs, was all conjecture and guess work. Back in August last year we predicted gross lending would hit £1bn by early 2012.
That was proved almost unerringly accurate, with our latest index revealing gross lending reached £911mn by the end of 2011.
Unsurprisingly, the headline growth figures from the latest Index cast the bridging industry in a favourable light compared to the mainstream mortgage market. Gross lending increased 110% in bridging between 2010 and 2011, compared to just 4% in the main market. For net lending growth, the scoreboard reads 67% to 27%. And so it goes on.
Rates on bridging loans have fallen from 1.61% to 1.41% in the space of a year. Contrast that to the high street, where lenders like Halifax and RBS are pushing up rates because they can no longer afford to absorb increased funding costs.
LTVs are the one area where the bridging sector isn’t outgrowing the main market. Although the average LTV in bridging is three-percentage-points higher than it was a year ago, they are five-percentage points higher in the main market according to the e.surv Mortgage Monitor. And our analysis reveals LTVs in bridging trended downwards slightly in the last quarter of last year to 45.7%.
But the pattern of stronger LTV growth in the main market is unlikely to continue, which is why we expect the bridging industry to close the growth gap. High street lenders busted a gut to push out more high LTV mortgages last summer in a bid to boost their market share and meet lending targets. It was a short-term approach that they won’t be able to sustain in 2012 thanks to increasing funding costs.
More recently, average LTVs have been swollen by a stampede of first time buyers rushing to beat the end of the stamp duty holiday on 24th March. First time buyer levels will drop back to a more subdued level once the deadline expires, and average LTVs will fall accordingly. There are already signs this is happening as they fell for the third consecutive month in February.
The prospects for LTVs in bridging are more encouraging. Rates have fallen to an average of 1.41%, which is encouraging investors to take on higher LTV loans. It’s clear buy-to-let investors are tackling much more ambitious projects, so we expect to see an increase in the size of loans, which will push up LTVs even further.
The average loan size was 28% higher in 2011 than 2010, indicating investors are taking on yet bigger projects and looking to borrower more as a result. This is also reflected in our research of broker expectations for 2012, which showed almost half of brokers expect LTVs on bridging loans to go up in 2012.
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