Between improving economic conditions, growing consumer confidence and falling bridging loan rates, 2014 is set to be the strongest year for bridging finance since before the onset of the financial crisis.
Alan Cleary, managing director of precise mortgages, cited a number of reasons for the positive projection, including a renewed investment into house-building initiatives, the cost and availability of bridging finance, and the current strength of the buy to let market (which accounts for “more than half” of the bridging loans that Precise currently funds).
In fact, according to figures from the Council of Mortgage Lenders (CML) and Bank of England, Buy to let lending is on track to hit £20bn by the end of this year and £25bn by the end of 2014, which will mark consecutive annual increases of 18% (from the £16.4bn forwarded in 2012) and 25%. Additionally, buy to let is accounting for a growing proportion of outstanding mortgage debt in the UK – the figure stood at 13.3% at the end of Q2, 0.2% higher than the preceding quarter and 0.4% higher than the previous year.
Bridging loan rates
As access to bridging finance improves further and bridging loan rates continue to fall, short-term secured finance is likely to become an increasingly attractive option for many investors and businesses.
Mr Cleary commented that, since interest rates as low as 0.75% come onto the market, more brokers have been willing to recommend bridging loans as a form of short-term financing for renovation and other projects. On a six month, £100,000 loan, the difference between a rate of 0.75% and a one-time average of around 1.5% amounts to £772.50 per month.
Though it is worth noting that Precise deals largely with the prime and near-prime market, maximum bridging loan rates are also falling at the other end of the market. In the 12 months to August 2013, average rates were 1.25%, compared to 1.40% during the preceding 12 months. (Source: West One Bridging Index for October 2013.)
What this means for bridging finance
Bridging, a formerly specialist product, could become a more ubiquitous feature of many investments in the months ahead. As competition for the business offered by a burgeoning market drives down rates, an emergence of more ‘tied’ products – such as the ‘bridge to let’ loan – is feasible.
The bridge to let loan converts into a regular buy to let mortgage after four months, allowing the investor to refurbish a property that a traditional mortgage could not otherwise finance. A growing housing market will create a demand for similar cooperative products that suit a wider variety of projects – again, something facilitated by lower bridging loan rates.
To discuss the requirements for your investment and see what products are currently available, call us for free on the number above or make a bridging loan enquiry.