Gross annual bridging lending increased to £3.6bn in February, rising from £3.5bn at the end of 2015 according to the latest West One Bridging Index.
It represents a 3% increase in gross annual lending since December.
West One said the growth in short-term finance has been driven by a number of factors including an uplift in demand for bridge-to-let loans in advance of April’s Stamp Duty surcharge. With property transactions rising 16.1% year-on-year in February, there has been a surge in demand for bridging finance in order to unblock property chains and raise additional finance, the firm said.
The sale of residential properties at auction also hit a record high in February, rising more than 25% compared to the same month last year. West One said this continued growth in auction sales has provided a significant boost to bridging lending in the first two months of the year.
However, total bridging lending growth was tempered by a month-on-month flattening of construction output in February, down 0.3%, alongside a slight 2% contraction of the commercial property market. With smaller developers using short-term finance to aid in the completion of projects and specialist finance providers helping fill the post-recession gap in commercial lending, the dip in these markets has had some influence on growth in the short-term finance sector.
However, West One expects these markets to improve following the reduction in Stamp Duty announced in March’s budget.
Stephen Wasserman, managing director of West One Loans, said: “A 3% rise in lending may seem moderate, but that’s relative to some significant recent sector expansion. Moreover, we’ve seen healthy growth continuing in the weeks since February.
“A major contributor is professionals using bridging as part of their strategy to buy residential properties in need of renovation, improve them and re-sell at a healthy profit. In this case, the flexibility of bridging finance is well-suited to financing such activity. With this group often buying at auction, our experience fits with the surge in auction buying noted. Moreover, we anticipate further growth from this group, favoured by the underlying lack of supply of new homes.
“Recently released DCLG figures showed that housing stock growth of 0.73% lagged population growth. That means renovating undesirable properties will continue to be a profitable and attractive business, from which bridging will benefit.
“DCLG data also showed a greater rise in private rented housing over owner-occupied. We’ve also observed strong growth in bridging to acquire properties, often at auction, with a view to buy-to-let refinancing. In spite of fears that Stamp Duty changes would dampen both the buy-to-let and linked bridging markets, we’ve seen that growth continue both before and after the deadline. This is because the majority of those who use bridging before buy-to-let refinancing are professional landlords, building full-blown businesses. They will continue to do so, as 3% makes little difference in the long run. Coupled with the fundamentals of housing supply and affordability, there’s still a major opportunity for those who can access capital, to build private rented businesses. Bridging will continue to be their financing of choice.”