The average loan size was 11% lower falling from £412,000 in Q1 to £368,000 in Q2.
Loan sizes have fallen steadily since March when they reached a record high of £479,000.
The fall is in line with the steady deterioration of the economy and tougher funding conditions for lenders with orthodox funding models.
The average loan size was 25% higher than in Q2 last year suggesting property investors are using bridging loans to tackle larger, more ambitious projects than last year.
Duncan Kreeger, chairman of West One Loans, explained: “It’s hardly surprising the pace of growth is slowing. Last year and the first quarter of this year were a golden spell for bridging. The rate of growth we saw over that period was never likely to be sustained over the long term. But that’s not to say the bridging market is running out of steam. Far from it.
"We believe it’s still someway off reaching its peak. The industry is maturing and entering the next phase of its evolution. It’s beginning to attract a more up market class of buy-to-let investor who, despite being credit worthy, often struggles to meet the increasingly tough lending criteria demanded by high-street banks.”
As a result of the drop in loan sizes and volumes over May and June quarterly gross lending fell 9% from £382m in Q1 to £348m in Q2.
Lending in Q2 was 111% higher than the equivalent period in 2011. On a twelve month basis lending rose 15% from £1.1bn in the year up to March to £1.3bn in the year up to June.
As of June this year, there were only four buy-to-let mortgages at 85% LTV available on the high street, and the number of buy-to-let loans granted quarterly has fallen 6% since the turn of the year to just 32,300.
Gross lending is down 8% since last autumn and plenty of investors who would qualify for finance in a healthy market are being turned away by high street banks.
Kreeger said: “Yields on residential buy-to-let property have broken through the 6% barrier over the last couple of months so it’s little wonder residential property accounts for such a large slice of lending. The high residential to commercial ratio also reflects the greater risk posed by commercial property.
"Gross yields on commercial buy-to-let are higher than residential property at around 7.5%, but with those higher returns comes a much greater chance of extended void periods. These periods are a black hole for investor finances. With demand so high in the rental sector, investors who take on residential property are unlikely to have to suffer prolonged voids.”
Further analysis by West One showed the average first-charge LTV in Q2 was 48% down from 51% in Q1.
The year-on-year comparison was more favourable, with the average LTV in Q2 up two percentage points year-on-year. It was also marginally higher the average for 2011 (47.5%). The increase tallies with increasing loan sizes over a twelve month period, driven primarily by investors taking on larger projects.
Kreeger said first-charge LTVs have come back down to earth after surging to well over 50% in the first quarter of 2012. Credit portfolios were particularly strong at the start of the year which helped push LTVs upwards.
The slight dip in LTVs since March reflects the more challenging credit conditions lenders have to contend with.
he said: "The upside of lower LTVs is it makes loans less risky for those who fund them. Investors don’t want to see LTVs trending sharply upwards because it means more risk in the loan."
Monthly interest rates have increased slightly rising in line with broader market trends. After a long period of falling rates dating back to early 2009 the average rate on a bridging loan rose to 1.43% in Q2 from 1.38% in Q1.
