Stephen Wasserman, managing director of West One, says it’s encouraging that the bridging sector is seeing its third consecutive quarter of annualised growth.
Mr Wasserman was speaking after it was revealed that the bridging sector continued its solid growth trajectory in the second quarter of 2017, according to findings from West One’s Bridging Index.
The latest edition of the quarterly report is the third consecutive edition to show growth in the market, revealing that gross annualized lending increased to £4.3bn in June – a substantial 4.2% increase from June 2016’s figures, and approaching 2016’s pre-EU Referendum high of £4.4bn.
The findings provide further evidence that the bridging sector has recovered from the pronounced slump in the Q3 of 2016 that followed in the wake of the Referendum result. The latest figures from the Association of Short Term Lenders (ASTL) bear this out, showing that gross lending from all its members rose to £875m in June – an increase of nearly £100m from £780m in Q1.
And Mr Wasserman said: “After a substantial dip in the market’s performance in the immediate aftermath of the Referendum, it’s obviously very encouraging that the bridging sector is seeing its third consecutive quarter of annualised growth.
"With this period including the significant political and economic volatility of Article 50 being issued, a snap General Election that delivered a hung Parliament and then the formal initiation of Brexit negotiations, the continued recovery only serves to underpin the resilience of the bridging market.
"At West One, we’ve seen a steady rise in demand for our bridging over the course of the last 9 months, and suspect this is due to more and more property professionals turning to alternative forms of finance, as a result of political uncertainty affecting appetite from conventional lenders.
"The drop in business in the wider market which followed in the aftermath of the Leave vote last June appears to have been only a blip, and has since been followed by a return to sustained growth. We expect that the bridging market will continue to this pattern of solid growth, in spite of an apparent slowdown in the housing market, as it takes up further slack in funding for property projects.”
West One says the size of the typical bridging loan has grown significantly over recent years, as property professionals have increasingly incorporated bridging into their project financing arrangements.
Over the last 24 months this has continued, with average loans trending to around £900,000. However, the average loan size did dip slightly in Q2 to £880,000 vs. £1.2m in Q1, as fluctuations in individual months fell as low as £600,000.
Although it remains too soon to identify a longer-run trend to smaller loans, the first half of 2017 did see fewer large transactions coming to market. The market for high-end properties with values over £1m, particularly in central London, has been sluggish.
With London property values continuing to drop compared with the rest of the country – in July, RICS reported that 45% of chartered surveyors in the capital said they observed a fall in prices in the past three months – many investors will be waiting to see how this market develops, before committing to development work there.
That suggests that larger transactions associated with this sector may well continue to be dampened. We may also see a higher volume of smaller loans continuing in the coming months, especially if investors turn to smaller deals or deals in other regions, to make the returns they seek.