"The stamp duty holiday has helped to bring business to the bridging market, which is continuing into 2021."
Annual bridging lending fell by £278 million due to Covid-19 disruption, but the market is showing signs of recovery, according to the latest data from Bridging Trends.
£455 million of bridging loans were transacted by Bridging Trends contributors in 2020, a 38% decrease on the previous year (£732.7m).
£112.86m in bridging loans were transacted by contributors in Q1 2020, before volumes plummeted to £79.4m in the second quarter as restrictions continued.
Encouragingly, volumes increased in the second half of the year to £115.52m in Q3 2020 and to £137.22m in Q4 2020.
Historically, a significant portion of bridging loan activity is unregulated but in 2020, there was a near equal split between regulated and unregulated transactions – with regulated bridging transactions increasing market share to an average of 49.4% of gross lending in 2020, compared with 39% in 2019, and 36% in 2018.
Average monthly interest rates increased in the first quarter of the year to 0.8%, before peaking at 0.85% in Q2. However, the second half of the year saw a sharp drop in pricing with the average monthly rate falling to 0.78% in Q3 and then 0.72% in the fourth quarter – the lowest ever rate recorded by Bridging Trends since its launch in 2015.
The average loan-to-value also fell to an average of 50.7% in 2020, down from 52.9% in 2019 and 55.6% in 2018. This could be due to bridging lenders pulling back on high LTV products, as well as a change in risk appetite due to market uncertainty.
Second charge loans accounted for an average of 23% of the market in 2020, up from 20% in 2019 and 17% in 2018. The second quarter of the year saw second charge transactions peak to the highest level recorded, at 26.1% of gross loan volume.
Funding an investment purchase was the most popular reason for obtaining bridging finance in the first three quarters of the year. However, in the fourth quarter, a traditional chain break was the most popular purpose, accounting for 23% of all transactions. This reflected the slow processing times in the mortgage market as borrowers tried to take advantage of the stamp duty deadline.
Gareth Lewis, commercial director at MT Finance, commented: “After the first lockdown, we saw the re-emergence of some larger lenders and if you combine this with the stamp duty changes, it is no surprise that there was a stimulus on rates and regulated bridging in the latter part of the year.
“As the vaccine rolls out and we gradually emerge from this lockdown, I believe we will see a new transactional flow from renewed confidence in the economy and businesses re-establishing themselves.”
Dale Jannels, managing director at Impact Specialist Finance, said: “The impact of the pandemic on the bridging sector is shown clearly in Q4’s data, but it also alludes to the activity we are now experiencing, some of which, but not all, is related to the stamp duty holiday deadline.
“It’s clear though that bridging finance is becoming better understood by the wider broker market (not just those in the specialist sector) and there is more confidence about the options it can provide customers, which should mean that 2021 could see a real watershed moment for this type of finance.”
Kevin Blount, head of operations at Clever Lending, commented: “We certainly had an increase in enquiries during the second half of the year which led to a spike in new business submitted to lenders in Q4. We are working hard with lenders to find solutions, who in turn are reviewing their criteria and interest rates to fit the current market. The stamp duty holiday has helped to bring business to the bridging market, which is continuing into 2021.”
Chris Whitney, head of specialist lending at Enness, added: “I am surprised that the fall in lending in 2020 was so great. The market has always ‘felt busy’ and Enness did not see such a big drop in volumes.
“Some big names in bridging closed their doors and some still aren’t back as they were. However, most of the short-term lending market either caried on throughout or paused only temporarily as working practices were refined and made fit for purpose under the restrictions we faced.
“The absence of some big names reduced supply and coupled with some restricting LTVs, this has had a marked impact on lending levels. This is also reflected in the fall in average LTVs over the year.
“However, as the trend in Q3 and Q4 indicated, we believe volumes will bounce back quite quickly and with people re-entering the market the data is reflecting the stiff competition lenders face for business in terms of lower interest rates.
“There are some big high-street names who see themselves as ‘business banks’ but many did not step up to the challenge and support customers as they should. Borrowers were turned away or faced a huge amount of red tape and did not get the support they needed.
“Overall the short-term lending market can be proud of what it managed to achieve. There are an awful lot of people who are very grateful, whose businesses, personal life and families are better for what the industry was able to offer them."