Trying to offer predictions on the market over the past two years has been a bit of a guessing game. However, with nearly every restriction lifted and following 12 months of solid lending in the specialist finance market in 2021, I think we can feel a little more confident for 2022.

Despite gross lending in the specialist market still being down compared to pre-pandemic levels, the housing market bounced back with a boom driven predominantly by the stamp duty relief. This, in turn, saw the specialist finance market come into its own as bridging led a huge resurgence, helping buyers who needed money quickly.

The demand in the residential sector has started to impact the commercial property market

In 2021, bridging was up 38% year on year, and I don’t think this demand will diminish soon. The stamp duty holiday boosted the housing market when we needed it most, but the result is a housing shortage with demand outweighing supply and price wars on properties.

With this in mind, I foresee bridging, and in particular regulated bridging, being in continued demand to try and beat the chains and delays in the market.

Boosted by bridging

In 2021, regulated bridging loans accounted for an average of 40.8% of all contributor transactions. Meanwhile, ‘funding a chain break’ was the second most popular use for bridging finance, at 18% of all lending, up from 17% in the previous year.

These figures aren’t 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 to a rise of £9,000 in each of the previous two years.

I believe the specialist finance market will return to pre-pandemic levels of lending

It’s no wonder buyers are seeking other funding options as they battle to secure their next home. With the number of potential buyers significantly outnumbering sellers, it is clear why residential bridging has increased: savvy buyers are using bridging loans to purchase their next property before theirs has even sold, to avoid missing out.

The market is battling not only a housing shortage but a land shortage. With an increase in the cost of land, fewer developments are taking place and the housing supply is lower.

Land shortage

The lack of land is the main barrier preventing more homes from being built, small builders have warned in a new survey carried out 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 shortages of materials.

Remote working has lessened demand for office space

The demand in the residential sector has started to impact the commercial property market too. With housing in such short supply, property developers and landlords looking to expand their portfolios are taking advantage of the changes in permitted development regulations and are converting semi-commercial and commercial properties into residential properties.

Empty buildings

The rise of remote working since the Covid pandemic has lessened demand for office space, leaving many commercial buildings empty and for sale at very reasonable prices. Although these developments offer a good opportunity, investors are still battling rising inflation and interest rates, and lending for this type of conversion has its downsides.

The Bank of England maintained interest rates at the historically low figure of 0.1% for as long as possible in an effort to overcome the severe financial impact of the pandemic. However, in recent weeks there have been increases that have to be reflected in borrowing.

Many commercial buildings are for sale at reasonable prices

Although I think the property market will begin to settle this year in the wake of the impact of the stamp duty holiday, I also believe the specialist finance market will return to pre-pandemic levels of lending.

The fallout from the past 24 months is likely to bring more complex cases, which is where the specialist market excels. So I think it’s finally time to feel optimistic about the year ahead.

Lucy Barrett is managing director of Vantage Finance