Mike Coates is managing director of Commercial Expert
2021 has been a year like no other for the commercial lending sphere. The reactive and fast-paced changes the industry has undertaken to accommodate the financial burden produced by COVID has demonstrated just how agile our industry really is.
With an unforgettable year like 2021, it is hard to be surprised when colossal changes are thrown our way. With that being said, 2022 is set to be another interesting year.
Bridging loan qualifications
It’s no secret that bridging lending has peaked this year. In fact, recent reports show it’s at the highest level since 2018. But with the rise in demand, more and more brokers are pushing for the introduction of a bridging qualification to ensure borrowers are being treated fairly and brokers are acting ethically.
To date, education of the bridging market has been slim to none, but in 2022 as demand continues to rise, this is likely to change. A number of regulatory bodies and financial institutions are already engaged in conversations about the introduction of a specialist bridging loan qualification, but personally I believe that the existing CeMAP qualification is suitable enough. 2022 will be a year of debate on this, I’m sure.
Further growth of buy to let landlords
With restrictions starting to tighten again, the rise of staycations within the UK is likely to continue for another year. Particularly with the ever-changing travel rules and restrictions, people will find that a hassle-free holiday closer to home is much more convenient.
Because of this, we are likely to see another rise in mortgage applications for buy-to-lets, and people deciding to add additional properties to their portfolio.
The last year has seen lenders alter their criteria to fit a wider range of buyers and lenders, catering to the demand and rise in interest of buy to let.
In 2022, we can expect to see more lenders appear in this market, with lending criteria that caters to people with a more complex financial standing, as well as first-time short-term letting buyers.
Beyond holiday lets, there will likely be a continued increase in the number of properties being purchased to rent out to tenants. Rising house prices and changes to income during the pandemic have left more people wanting to rent homes than ever before. How lenders will respond to this is yet to be determined.
Green finance deals
The ongoing concerns over our environment amid the climate crisis is likely to be front and centre, particularly following the issues put forward at COP26 in November. For the commercial finance sector, this means that green finance is likely to see a massive increase.
Metrics such as the EPC criteria will likely begin to take precedence during approval processes, with more favourable rates being granted to businesses whose impact is less severe on the planet.
Right now, green finance options are certainly around, but in 2022 it is likely to see green finance no longer be known as an alternative finance offering but become integrated as the norm.
Better processes and infrastructures within legal firms
Technology has taken priority in the commercial space, with recent research from Infosys showing that 51% of lenders use an almost complete digital approach, with a further 34% combining digital and paper approaches.
However, this hasn’t been the case within the legal landscape, and almost all brokers have reported persistent delays caused by the lack of infrastructure within legal firms.
We can expect to see technology revolutionise the sector in 2022. For example, machine learning and Optical Character Recognition (OCR) are being fast adopted in the credit approval process. This process has been shown to eliminate the long waits that occur under the review of legal documentation.
Ongoing financial struggles
With a new variant of COVID spreading in the UK, there are concerns as to whether further restrictions will be put on businesses in the coming months.
If it does, this is likely to create another period of turbulence, thus potentially problems with repayments on loans (BBL too). Not only will lenders become even more conscious with their lending decisions, but businesses also seeking mortgages etc will likely want to do so for survival, rather than to aid growth.
Increasing interest rates
With the country still bouncing back financially from the pandemic, the state of the economy is still playing a vital role in how people are interacting with commercial finance.
What’s looking to be a large factor in this from an economic perspective in 2022 is the likelihood of more increased interest rate rises from the Bank of England, in an effort to curb inflation.
The rate has recently increased to 0.25% but experts are strongly expecting rates to rise above 1% by the end of 2022. This means whilst people are less likely to be taking out loans and mortgages, those in lending contracts may be subject to higher payments – particularly those with a variable loan rate.
An increased dependency on technology
Automation will rise dramatically in 2022. Particularly with commercial mortgages, people no longer want to go through a different process to get the end result. Streamlined processes through automation will see more commercial real-estate agents offer the capability to be able to find, buy
and secure a mortgage all from the same platform – with a customer-centric and seamless approach – slashing the times that often occur between finding a property and securing a mortgage.
2022 is set to be an interesting year for sure and one heavily defined by technology and regulation. Could this be the year commercial lending becomes fully regulated? Doubtful, but it certainly is on the agenda.