Trying to come up with market forecasts over the past two years has been a bit of a guessing game. However, with almost all restrictions lifted and after 12 months of strong loans in the specialist financial market in 2021, I think we can feel a little more confident for 2022.
Although gross lending in the specialty market is still down from pre-pandemic levels, the housing market has rebounded with a boom driven mainly by stamp duty relief. This, in turn, saw the specialist finance market come into its own as bridges led to a huge resurgence, helping buyers who needed cash fast.
Demand in the residential sector has started to impact the commercial real estate market
In 2021, bridging is up 38% year-over-year, and I don’t think that demand will diminish anytime soon. The stamp duty exemption has boosted the housing market when we needed it most, but the result is a housing shortage with demand outstripping supply and property price wars.
With that in mind, I anticipate that bridging, and in particular regulated bridging, will be in continued demand to try and beat the shackles and lags of the market.
Boosted by bridging
In 2021, regulated bridging loans averaged 40.8% of all contributor transactions. Meanwhile, ‘chain break financing’ was the second most popular use of bridge financing, at 18% of all loans, down from 17% the previous year.
These figures are not surprising. House price inflation is the highest since 2005, with the average advertised cost of a home rising by £40,000 since the pandemic, compared with an increase of £9,000 in each of the previous two years.
I think the specialty finance market will return to pre-pandemic lending levels
It’s no wonder buyers are looking for other financing options as they battle to secure their next home. With the number of potential buyers significantly outnumbering sellers, it’s understandable why residential bridging loans have increased: savvy buyers are using bridging loans to buy their next property before theirs is even sold, to avoid pass by.
The market is struggling not only with a shortage of housing, but also with a shortage of land. With an increase in the cost of land, less development is taking place and the supply of housing is lower.
Lack of land is the biggest barrier to building more homes, small builders have warned in a new survey by the Federation of Master Builders. At the end of 2021, 63% of small builders said a lack of available and viable land was limiting their ability to build homes, and more than six in 10 (62%) said they were also struggling with housing shortages. materials.
Remote work has reduced demand for office space
Demand in the residential sector has also started to impact the commercial real estate market. With such a housing shortage, property developers and landlords looking to expand their portfolios are taking advantage of changes in permitted development regulations and converting semi-commercial and commercial properties into residential properties.
The rise of remote working since the Covid pandemic has reduced demand for office space, leaving many commercial buildings empty and for sale at very reasonable prices. While these developments provide a good opportunity, investors are still struggling with rising inflation and interest rates, and loans for this type of conversion have their downsides.
The Bank of England has kept interest rates at a historic low of 0.1% for as long as possible to weather the severe financial impact of the pandemic. However, in recent weeks there have been increases which must be reflected in borrowing.
Many commercial buildings are for sale at reasonable prices
While I think the real estate market will start to calm down this year following the impact of the stamp duty exemption, I also think the specialist financial market will return to pre-pandemic lending levels.
The fallout from the last 24 months is likely to bring more complex cases, where the specialist market excels. So I think it’s finally time to be optimistic for the coming year.
Lucy Barrett is Managing Director of Vantage Finance