Bridging lending defies Brexit uncertainty with 3.3% rise

Gross annual bridging lending increased to £4.4bn in July following the Brexit vote, with a 3.3% rise in lending since June, according to the latest West One Bridging Index.

Related topics:  Specialist Lending
Rozi Jones
22nd September 2016
brexit
"With funding from traditional lenders drying up, the short-term finance sector has stepped up to plug the financing gap."

West One attributed the rise to traditional high-street banks reducing mortgage lending by 12.8% year-on-year in July, as seen in the Bank of England's Money and Credit statistics.

The research also found that with rising purchase prices continuing to drive consumers to the private rental sector, many smaller developers and landlords use bridging finance to purchase properties at auction.

West One added that rising house prices also encourage short-term borrowing because the capital gain on a residential home can compensate for the interest charged on the bridging loan. This is useful for small developers who require additional funding to get their property ready for sale.

The 15-20% post-Referendum fall in Sterling has also made British property more attractive to foreign investors – a key source of funding for commercial developments. Commercial funds have also now lifted the suspensions in trading which were put in place in the immediate aftermath of the Leave vote.

Stephen Wasserman, Managing Director of West One Loans, commented: “Once the initial surprise of the Referendum subsided, bridging lenders got back to business. While some deals did fall through at the end of June, plenty of new opportunities have appeared. With funding from traditional lenders drying up, the short-term finance sector has stepped up to plug the financing gap. Small businesses have also sought additional finance over the last few months to tide over the slowdown after the referendum. As the economy shook off any Brexit worries, bringing lending has increased.

“As fears of a new recession fade and confidence returns to the housing market, growth in the short-term finance sector will likely accelerate as residential transactions pick up pace. Clearly, with Brexit negations still to take place, uncertainty does still linger. However, the UK’s exit won’t take place for a few years, so demand for short-term finance remains strong, even if longer-term lenders may be struggling.”  

Danny Waters, Chief Executive of Enra Group, commented: “The short-term finance sector has succeeded in growing despite economic uncertainty. Breaking through the £4bn barrier is a significant achievement for short-term lenders. With gross annual lending only passing £2bn in April 2014, bridging lending has doubled in the last two years. Short-term finance now has a much more prominent role in the wider financial sector, with far more borrowers making use of the speed and flexibility of bridging loans.

"The nature of bridging allows customers to meet a much wider variety of financing needs. For investors, with traditional fixed-income investments offering uncertain returns, such as miniscule Government bond yields, short-term finance should be a serious consideration. Those lenders in the sector who are maintaining safe and sensible lending practices, will represent investment opportunities that are resilient enough to navigate through any future Brexit turbulence."

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