Just when we thought the future was looking more certain, the Omicron variant has served as a timely reminder that making predictions is fraught with pitfalls. However, there are some trends that show a clear path of travel, whatever the external environment throws at them. Here are five trends that we think it’s safe to expect in the short-term lending market in 2022.
Bridging continues to become more integral
In 2021 we saw the value of bridging loan books top £5bn for the first time as short-term property lending continued to grow. Feedback from the market is that more brokers are recognising the uses of bridging loans for their clients and, with rates coming down, the pricing is making bridging finance more accessible to a wider group of customers.
Increasingly, therefore, bridging can be seen as an integral cog in the workings of the wider property market – saving transactions from falling through, enabling investors to buy, convert and refurbish otherwise unmortgageable property and providing a fast and flexible means of raising capital.
This ‘cog’ is only going to become larger and more influential as more people discover the benefits of bridging and competition continues to result in low rates and greater product innovation.
Robust underwriting will be vital
Low rates are certainly a good thing for customers, but the secret to any sustainable lending is balancing risk and reward. Those lenders that sacrifice margin at the same time as loosening underwriting standards could find that they are left exposed financially. The rate paid by a customer should always be proportionate to the risk undertaken by the lender and that requires robust underwriting. As we enter another year of pandemic and continued uncertainty, nobody knows how easy it will be to secure an exit on a bridging loan, either by sale or refinance onto a term mortgage, in the future. Robust underwriting today, will mitigate against problems further down the line.
Policies and procedures will come under scrutiny
We know that ‘ambulance chasing’ claims companies are currently assessing the bridging market, looking for areas where they may be able to secure compensation for customers, and a revenue stream for their business. With this in mind, it’s more important than ever than lenders, and intermediaries for that matter, are confident that they have robust and fair policies in place and that their procedures and documentation reflect those policies.
One area of interest will undoubtedly be the issue of undisclosed commissions and the outcome of a court case last year makes it clear that if a lender has paid a commission to a broker which has not been disclosed to the borrower, that lender is now more at risk of the entire loan being set aside. And where a loan is set aside, this can mean that a lender will have to make a substantial payment to the borrower and, in some cases, the lender might also be required to pay damages. This will clearly be high on the agenda for the claims companies so it’s important for businesses in our sector to ensure they have watertight, customer-focused policies.
More emphasis on education
As was announced towards the end of last year, the Financial Intermediary & Broker Association (FIBA) and the ASTL have collaborated to launch a proposal for an ongoing programme of education for the commercial property finance industry, which includes bridging, short term finance, development finance and specialist buy to let.
We are working with The London Institute of Banking & Finance (LIBF) on the creation of a series of optional e-learning modules that will be recognized through the award of an LIBF digital badge and accredited for CPD purposes and, as an industry, we believe there will be a much greater emphasis on ongoing education as we proceed through the year.
Greater co-operation between trade associations
Our co-operation with FIBA on the education programme for the industry is just one example of greater co-operation between trade associations and I am hopeful that, during 2022 this will become even more evident in collaboration with both AMI and NACFB too. Greater co-operation between trade associations, on those issues where we are aligned, simply makes sense as it amplifies our voice and gives us all greater influence, and this is definitely an ongoing trend to watch in 2022.
Vic Jannels, CEO of the ASTL
A version of this article appeared in the January 2022 online edition of Bridging Introducer