Sanders: Low bridging interest rates a recipe for disaster

February’s West One Index revealed that average monthly rates on short-term second charge loans stand at 1.26% from 1.49% in January 2013.

But Sanders said: “While doubtless good news for brokers and their clients, I have a concern regarding the longer-term consequences.

“Driving prices down in pursuit of market share – but without a correlating improvement in risk quality – is a price the pre-2008 mortgage market found too high to bear. I do not want to see history repeat itself.

“The reasons for falling rates are obvious: increased competition and the availability of cheaper funding. But short-term property lending – particularly to professional developers and investors – is less about price than about certainty and flexibility of funding.”

The report found that in terms of volume second charge short-term loans outpaced first charge lending over the last two years, increasing by 57% compared to 51% since January 2012.

Omni Capital’s ratio of second charge to first charge business had actually reduced however.

Sanders added: “There are two principal factors behind this. First, we have deliberately shifted our model to attract high-value ‘big ticket’ business, much of which is simply unsuitable for structuring on a second-charge basis.

“And second, we have become increasingly concerned by the exit assumptions presented to us in second-charge loan applications.”