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Mike Coates is Managing Director of Commercial Expert
2021 has been a year like no other for the commercial lending world. The reactive and rapid changes the industry has undertaken to deal with the financial burden produced by COVID have demonstrated just how agile our industry truly is.
With an unforgettable year like 2021, it’s hard to be surprised when colossal changes come our way. That being said, 2022 is set to be another interesting year.
Bridge loan qualifications
It’s no secret that bridging loans peaked this year. In fact, recent reports show that it is at the highest level since 2018. But with increasing demand, more and more brokers are pushing for the introduction of a bridging qualification to ensure that borrowers are treated fairly and brokers act ethically.
To date, education of the transition market has been slim to none, but in 2022, as demand continues to rise, this is likely to change. A number of regulators and financial institutions are already engaged in discussions about introducing a specialist bridge loan qualification, but personally I think the existing CeMAP qualification is adequate enough. 2022 will be a year of debate on this, I’m sure.
Continued growth in buying to rent to owners
With restrictions starting to tighten again, the rise in UK stays is expected to continue for another year. Especially with the ever-changing travel rules and restrictions, people will find a hassle-free vacation closer to home to be much more convenient.
Because of this, we will likely see a further increase in mortgage applications for rentals and people deciding to add additional properties to their portfolio.
Last year, lenders changed their criteria to accommodate a wider range of buyers and lenders, meeting the demand and rising interest to buy-to-rent.
In 2022, we can expect to see more lenders appear in this market, with loan criteria aimed at people with a more complex financial situation, as well as first-time buyers of short-term rentals.
Beyond vacation rentals, there will likely be a continued increase in the number of properties purchased for rent to tenants. Rising house prices and changing incomes during the pandemic have caused more people than ever to want to rent homes. How lenders will react to this remains to be determined.
Green financing agreements
Persistent concerns about our environment amid the climate crisis should be at the forefront, especially following the issues raised at COP26 in November. For the commercial finance sector, this means that green finance is expected to experience a massive increase.
Measures such as the EPC criteria are likely to begin to take precedence during approval processes, with more favorable rates granted to companies with less severe impact on the planet.
Right now, green finance options certainly exist, but by 2022 it is likely that green finance will no longer be known as an alternative finance offering but will become mainstreamed as the norm.
Better processes and infrastructure within legal firms
Technology has taken priority in the commercial space, with recent research from Infosys showing that 51% of lenders are using a near-complete digital approach, with an additional 34% combining digital and paper approaches.
However, this has not been the case in the legal landscape, and almost all brokers have reported persistent delays caused by a lack of infrastructure within law firms.
We can expect to see technology revolutionize the industry in 2022. For example, machine learning and optical character recognition (OCR) are rapidly being adopted in the credit approval process. This process has been shown to eliminate the long waits that arise when reviewing legal documentation.
Ongoing financial difficulties
With a new variant of the spread of COVID in the UK, it is questionable whether further restrictions will be placed on businesses in the coming months.
If this is the case, this risks creating a new period of turbulence, thus potentially problems of repayment of credits (BBL too). Not only will lenders become even more aware of their lending decisions, but businesses who are also looking for mortgages etc. will likely want to do this for survival rather than for growth.
Increase in interest rates
As the country continues to recover financially from the pandemic, the state of the economy still plays a critical role in how people interact with commercial finance.
What seems to be an important factor in this regard from an economic point of view in 2022 is the likelihood of an increase in interest rates from the Bank of England, in an effort to curb inflation.
The rate recently increased to 0.25%, but experts strongly expect rates to exceed 1% by the end of 2022. This means that while people are less likely to take out loans and mortgages. mortgages, those with loan contracts may be subject to higher payments. – in particular those at variable rate.
Increased dependence on technology
Automation will increase dramatically in 2022. Especially with commercial mortgages, people no longer want to go through a different process to get the end result. Streamlined processes through automation will enable more commercial real estate agents to offer the ability to find, buy
and get a mortgage from the same platform – with a transparent, customer-centric approach – reducing the delays that often occur between finding a property and securing a mortgage.
2022 is set to be an interesting year for sure and strongly defined by technology and regulation. Could this be the year that commercial lending will be fully regulated? Doubtful, but it is certainly on the agenda.
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