2018 Q2 bridging market performance and the rise in refurbishment loans

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The bridging finance market has experienced some favourable changes for borrowers, however, with yields being squeezed across the country, buy-to-let investors are turning to refurbishment as a way of securing profits.

Bridging market conditions

Whilst the average monthly interest rate remained at 0.83% for the third consecutive quarter and the average term of a bridging loan in the second quarter remained at 11 months, competition remains strong amongst the bridging lenders, with many new and existing entrants fighting for a larger marker share. Consequently, there has been an observed steady decrease in the average monthly interest rates when looking at each quarter on quarter.

This has attracted property traders to the well-established bridging market and significantly increased the level of unregulated loans to 81% of all loans. On the other hand, the regulated sector is still seeing a lot of transactions where borrowers are taking advantage of refurbishment loans on their own homes and then refinancing them out with a term loan once works are completed and value added.

Overall, the bridging market is currently showing more favourable conditions for borrowers. In the second quarter, there was a 7.8% increase in average LTV levels in the second quarter to 56.9% and a decrease by 5 days in the average completion time on a bridging loan application to 43 days.

Spike in refurbishment loans

British buy-to-let landlords are currently divided over the future of the sector in light of recent tax and market changes, with 44% looking to sell and the other 56% planning to keep or buy more rental properties in the near future, according to research from Octopus Choice. Among those looking to exit, 61% claim to have undervalued the costs involved and 60% have become burdened with property management, whilst 24% blame falling yields.

Along with slowing house price growth, this suggests that London landlords will be facing the toughest choices as their profits are set to be squeezed further, with three quarters of landlords in the capital thinking that investing in buy-to-let will be less worthwhile in five years’ time, more than any other area.

However, according to market data, many investors have identified refurbishments as a way of bolstering yields in an environment where purchases are becoming increasingly difficult. The bridging loan sector has seen an 18% increase in lending for refurbishment purposes in the second quarter of 2018, in turn, placing improvements in properties as the motivation behind 34% of all lending.

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