A number of factors have an impact on trends in lending and borrowing. Interest rates, consumer confidence levels, economic factors and world issues all can change the way consumers and businesses think about sources of capital and how and when to borrow.
What’s Happening in 2022?
We’ve curated a wide range of facts and trends about lending in 2022. Whether you’re a small business, an investor, or a renter/homeowner looking to trade up, here’s a perspective on the world of lending as it stands today in the United States.
Long viewed as the “coming of age” number, it reflects where the lending space is today. Consumer and business demands, the housing boom, low mortgage rates, and automation are all converging to create a lending landscape like we’ve never seen before.
In short, 2022 will be the coming of age for both borrowers and lenders. Of course, economic factors are subject to rapid change, so watch this space for more updates and insights.
#1 Although mortgage rates have crept up slightly since 2021, fixed-rate mortgage loans are still below 4 percent on average, a significant decline from past years.
#2 Experts predict that mortgage rates will continue to rise throughout 2022.
#3 Mortgage applications have been declining lately.
#4 Purchase mortgage originations are expected to hit a record $1.7 trillion in 2022, but overall originations may decline by as much as 33 percent. Higher rates and fewer qualified homeowners will put a damper on refinance volume.
#5 Although home sales are still on the upswing, price growth will slow to 3 percent.
#6 Younger buyers will remain at a disadvantage because of their limited credit history and inability to compete on pricing with established homeowners.
#7 Consumers are seeking digital alternatives and speed in the mortgage process, with 60 percent of borrowers open to completing the entire process online.
#8 Borrower satisfaction drops significantly if their lenders move too slowly. In fact, it drops 15 percentage points when the decision process takes more than 10 days.
#9 The top five banks only account for 21 percent of mortgage originations, as non-bank lenders have become more prevalent.
#10 New types of lenders are entering the space. For example, real estate tech companies are now offering integrated home buying and mortgage services.
The housing market and mortgage lending will remain hot and competitive throughout the year. To compete and earn your share of the market, you must be nimble, tech-savvy, and hyper-focused on the needs of the digital consumer. Make sure you’re not ignoring the needs of first-time homebuyers as you develop your marketing and lending strategies.
Other Consumer Loans
#11 Personal loan originations are up 14 percent year-over-year among prime borrowers (people with credit scores between 660 and 719). That surpasses pre-pandemic levels. Total loans are expected to hit $20 million in 2022.
#12 Credit card delinquencies are expected to rise, along with big-ticket purchases. Millennials and Gen Z are becoming a larger part of the consumer borrower segment.
#13 Fair lending practices will be under more scrutiny than ever before.
#14 Peer-to-peer (P2P) lending is becoming an alternative to traditional loans from financial services companies.
#15 “Embedded” lending has become a common form of financing. When a consumer is buying a product, the retail is automatically offering credit at the time of purchase. This has become especially popular for online purchasing.
Serve the needs of ALL consumers who look to borrow and be aware that your competition in the future may be coming from non-bank lenders. As we discussed in a previous post, the “gig worker” is no longer a credit risk. This segment is a fast-growing population, and developing a system to work with them is critical to every lender’s 2022 plans.
Small Business Borrowing
#16 Small business growth remains strong, with 17 million companies expected to launch in 2022.
#17 Banks and credit unions will continue to make capital available to small business owners, but alternative lenders are emerging as well.
#18 “On-the-go” working capital is becoming an alternative to traditional borrowing. Alternative lenders enable small businesses to get funds via their smartphones, as they need it.
#19 The “do it together” trend is emerging. That means that other types of cloud-based accounting and management companies are getting into the lending business by either offering loans themselves or partnering with other types of companies. Companies are looking to ways to serve the needs of small businesses via one-stop shopping.
The base of small business borrowers is steady and may, in fact, be growing. Remain competitive with alternative lenders and offer technologies to expedite the process, making capital available to qualified borrowers when they need it.
General Trends & Facts
#20 Online lending is the “new normal,” with all generations utilizing digital tools to shop rates and find lenders.
#21 Automation and AI will play a significant role in the lending process heading into the future.
If you’re not upping your technology capabilities in 2022, you risk being left in the dust, especially as new players enter the market.
What You Need to Do to Effectively Compete This Year
Whether you’re a larger institution, a small regional or community bank or credit union, or alternative lender, you must:
Stay on top of trends.
The world of lending is becoming increasingly complex. Understanding your target market and borrower needs is more important than ever before. Your “traditional” client may not be the borrower of tomorrow. Above all, keep an open mind about different segments of the market.
Redefine your competition.
Consumers and businesses are as likely to look to alternative funding sources as they are to conventional banks, so develop a new perspective on the definition of “lender.”
Pay close attention to speed and service.
Borrowers are as likely to consider the process as they are to examine rates, so be sure you’re delivering fast and fair decisions.
Use technology to expedite every step of the process and reduce your own operating expenses.
Don’t assume that technology innovations are just for big banks. Many solutions today will enable you to automate the lending function without investing in custom build-outs.
Throughout 2022 we’ll be bringing you trends and insights to help you refine your offering, appeal to today’s borrowers, and remain competitive. Find out how you can automate your lending in 2022 with a fully customized platform.