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Buy to let investors looking for money to close deals pushed loan values for short term bridging lenders up 110% to £911 million last year.
Bridging firm West One claims mainstream banks and building societies cannot cope with demand for buy to let finance, which is forcing borrowers to look to other sources of finance.
The buoyant buy to let sector has carried bridging lenders on the crest of a wave – with borrowing expecting to breach the £1 billion barrier in 2013.
Not only was the amount borrowed up last year, but the number of loans surged by 62%, compared with 2010, said the lender.
Average loan-to-value increased from 44% in 2010 to 47%, while average interest rates dropped to 1.41% at the end of 2011 from 1.64% a year earlier.
West One Loans chairman Duncan Kreeger expects loan-to-values to push higher.
“Greater appetite for larger and more ambitious projects will keep loan sizes high, which in turn will help support loan to values in 2012. This is in stark contrast to the mainstream mortgage market, where loan to values are beginning to fall after a brief resurgence,” he said.
“The first-time buyer mortgage famine means a feast for property investors. Rents are high, property prices are deflated, and that has created a vibrant rental market that investors are piling into.
“Buy to let lending is still very low by historic standards. In 2011, there were 124,000 buy to let loans, compared to 346,000 in 2007. As a result more landlords are using bridging loans to finance the development of properties they can’t get mortgages on.”
Meanwhile, Kreeger is among other bridging loan executives calling for a clean-up of the sector by whoever is appointed chief executive of trade body the Association of Short Term Lenders.
Incumbent Adrian Bloomfield has resigned, leaving the post open.
“At the moment, decent, honest upright lenders are being lumped in the same boat as some less reputable outfits,” said Kreeger.
“This is a serious problem for the industry and the ASTL should keep the cowboys out.
“I don’t want ASTL membership lending a veneer of respectability to people who offer misleading headline rates, hoard procuration fees, and attract negative press to bridging.”
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