The growing mainstream appeal of bridging
The mini-boom in the housing market since the first national lockdown lifted – fuelled by pent-up demand, a need for more space and the stamp duty holiday – is encouraging for an economy which has been shattered by the pandemic. But while demand for mortgages, valuations, conveyancing and removals has soared, it has inevitably created a backlog of delays. With the big banks unable to cope with demand and service levels suffering, bridging lenders are increasingly helping fill the gap.
MT Finance’s Bridging Trends survey reveals that bridging activity rose by 46 per cent between July and September, compared with the previous quarter. That manifested itself in £116m of lending, lower than pre-pandemic levels but still a considerable amount of money heading the way of specialist lenders. With the average rate for bridging finance also falling to 0.78 per cent from 0.85 per cent in the second quarter, bridging is becoming more accessible to those struggling to get funding from mainstream, high-street lenders.
While the average rate has fallen, the average loan-to-value (LTV) for bridging finance has slightly risen – from 48.8 per cent to 51.7 per cent. This presents its own challenges for specialist lenders, such as MT Finance, who need to be aware that they aren’t operating in a vacuum.
We need to know what is going on in the broader marketplace as a significant percentage of the exit strategies for our loans will be directly and/or indirectly reliant on mainstream funding in due course.
There has been much coverage on the dearth of high LTV deals in the mainstream market so it follows that any sensible specialist lender must ensure that the LTV it is offering is in line with what is broadly available in the mainstream market. A lender should not offer high LTV bridging loans in the hope that higher LTV mortgages will soon be more widely available when the client comes to refinance. This is not a healthy approach, and not what bridging finance should be used for.
Sensible LTVs, combined with flexible funding
MT Finance’s average LTV is somewhere between the 65 and 70 per cent mark, with each case assessed on its merits, and the viability of the borrower’s proposed strategy for repayment very much at the fore. The vast majority of our clients aren’t looking for high LTVs, but for flexible funding which allows them to quickly draw down funds for a specific commercial opportunity.
We continue to see strong demand from property owners who are adding value to their existing portfolios by converting properties into houses of multiple occupation (HMOs), reconfiguring so as to add a bedroom, or undertaking heavy refurbishment. In these instances, the experienced investor wants to keep their costs down and so isn’t seeking maximum leverage; instead, they borrow what they need to complete their goal.
There is presently no shortage of liquidity in the market, and while many high-street lenders may have reigned in some of their higher LTV products in recent weeks, there remains a broad range of mortgages readily available. Encouragingly, high LTV deals are increasingly hanging around for longer – weeks rather than days – which suggests there is less pressure on lenders and resources for these products than has been the case.
Interestingly, with significant pent-up demand resulting in a large and sudden influx in applications, the biggest challenge facing the mainstream mortgage market does not relate to either liquidity or LTVs, but instead capacity. This is where specialist finance lenders can really assist by providing funding much more swiftly in instances where this is needed.
If you would like to discuss a bridging finance enquiry, please don’t hesitate to contact a member of our team on 02030512331 or leave your details on our contact form, and someone will be in touch with you shortly.