A set of mortgage rules introduced earlier this year to prevent irresponsible lending has boosted the market for short-term bridging loans.
The Mortgage Market Review (MMR), which came into effect in April, has coincided with accelerating growth in bridging finance, according to West One Loans.
The latest West One Bridging Index shows that growth in annual bridging lending reached 24% in the year to 1 July, compared with growth of 18% in the year to 1 May.
Bridging loans are useful for funding short-term projects, and for bridging the gap between securing a property and arranging a longer-term commercial mortgage.
The introduction of the new mortgage rules has boosted the rise in bridging lending to £2.17 billion, as loan volumes grew by 28% over the year.
The Mortgage Market Review introduced stricter affordability checks to prevent borrowers from taking out loans that they cannot afford.
Mortgage lenders must now interview new lenders to understand more about their financial situation. Lenders have had to pay more attention to borrowers’ outgoings to gain a more complete picture of their ability to repay their mortgage loans.
This has caused a modest dip in mortgage lending, as waiting lists developed to speak to mortgage advisors, though levels have since recovered to reach a six-year high.
Duncan Kreeger, the director of West One Loans, said that the bridging finance industry had benefited from the measures introduced by MMR.
"Post-MMR delays in the mainstream market have crept into many areas of buy-to-let and commercial lending,” said Mr Kreeger.
"So many property investors are now more actively choosing to bypass the usual lenders from the start – as the high street is forced to focus its attention on simpler cases."
The bridging sector has remained largely unaffected by the stricter criteria imposed by MMR, and has thrived as the mainstream mortgage market adapts to the new conditions.
“Thanks to the constructive approach of the financial regulators, the new MMR affordability assessments don’t apply to most bridging loans,” Mr Kreeger said.
“Due to the nature of short-term secured finance, the loan term is almost always less than a year, and interest is often rolled up.
“This is combining with a growing awareness about what bridging finance can get done – thanks in no small part to the growing expertise of specialist brokers.
“As the variety of borrowers grows in line with the sheer numbers of inquiries, we don’t expect this acceleration to reverse any time soon.”