Figures published last month by short-term lender, MT Finance, revealed that UK interest rates fell to a record low in 2020’s Q4 period.
MT Finance reported that monthly interest rates had increased in Q1 to 0.8%, before peaking at 0.85% in Q2. The rates saw a drop to 0.78% in Q3, and by Q4, they had fallen further to 0.72% – which stands as the lowest rate recorded since 2015.
In 2020 around £455 million worth of bridging loans were transacted by Bridging Trends contributors, which stood at a 38% decrease from the previous year. In 2019, £732.7 million of loans were transacted.
Q1 of 2020 saw £112.86 million in bridging finance transacted by contributors before volumes plummeted to £79.4 million in Q2 as COVID-19 restrictions continued.
Volumes however did increase in the second half of the year to £115.52 million in Q3, and then to £137.22 million by 2020’s Q4.
Further, average loan-to-values (LTVs) decreased to 50.7% down from 52.9% in 2019 and a further 55.6% in 2018. MT finance suggested this fall was indicative of a change in risk appetite due to market uncertainty.
The Bridging Trends report is a quarterly publication used as a method to monitor the latest trends in particular areas of the lending market. The report also showed a near equal split between regulated and unregulated transactions.
The market shares of regulated bridging transactions increased to an average of 49.4% of gross lending in 2020, compared to 39% in 2019, and 36% in 2018.
The report stated that as the mortgage market struggled to cope with increased demand, bridging lenders took the decision to step in and fill the gap to meet the needs of potential homebuyers.
Further, according to the report, funding an investment purchase was in fact the most popular reason for obtaining bridging finance in the first three quarters of 2020. This was reflective of the slow processing times in the mortgage market as borrowers took the opportunity to take advantage of the March 2021 stamp duty holiday deadline set by the Chancellor of the Exchequer.
Signs of recovery
The commercial director at MT Finance, Gareth Lewis stated that:
“After the first lockdown, we saw the re-emergence of some larger lenders … this with the stamp duty changes saw 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.”
The managing director at Impact Specialist Finance, Dale Jannels, 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.”