Figures published today by short-term lender, MT Finance, revealed interest rates also fell to a record low in Q4 of last year.
It said average monthly interest rates increased in the first quarter of the year to 0.8%, before peaking at 0.85% in Q2 and then plunging to 0.78% in Q3. By Q4 they fell further to 0.72% – the lowest ever rate recorded by Bridging Trends since its launch in 2015.
Overall in 2020 some £455 million of bridging loans were transacted by Bridging Trends contributors, a 38% decrease on the previous year (£732.7m).
In Q1 £112.86m in bridging loans were transacted by contributors before volumes plummeted to £79.4m in the second quarter as Covid restrictions continued.
However, volumes increased in the second half of the year to £115.52m in Q3 2020 and to £137.22m in Q4 2020.
Meanwhile, average loan-to-values (LTVs) decreased to 50.7% down from 52.9% in 2019 and 55.6% in 2018. MT Finance suggested 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.
The Bridging Trends report, a quarterly publication which is used as a method for monitoring the latest trends in this area of the lending market, also showed there was a near equal split between regulated and unregulated transactions.
Indeed, the market share of regulated bridging transactions increased to an average of 49.4% of gross lending in 2020, compared with 39% in 2019, and 36% in 2018.
MT Finance said, as the mortgage market struggled to cope with increased demand, bridging lenders had stepped in and filled the gap to meet the needs of homebuyers.
Funding an investment purchase was the most popular reason for obtaining bridging finance in the first three quarters of the year.
Then, 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.
Signs of recovery
Gareth Lewis commercial director at MT Finance said: “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 added: “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.”
