Bank lending to SME property developers has fallen by 49% from £9.7bn in January 2017 to just £4.9bn November 2024, analysis from finance ISA provider CapitalRise shows.
The firm blamed this on regulations bought in following the financial crash of 2008.
Banks have instead focused on increasing lending to the biggest property developers – the amount of outstanding lending to those businesses has increased by 25% over the same period, rising from £5.6bn to £7bn.
Overall lending to property developers has fallen by 22%, from £15.3bn to £11.9bn since January 2017. This fall in lending has contributed to the shortage of new housing built in the UK over recent years.
Uma Rajah, chief executive of CapitalRise, said: “Smaller property developers can’t rely on bank lending in the way that they used to. Since regulatory changes that came in the wake of the Global Financial crisis many of the traditional institutions have felt the need to step back – there is a real gap in financing for SME developers now.
“In areas like prime property, small developers are critical to the market. Large developers tend to focus on major developments of hundreds of homes. Getting funding to those smaller developers is vital.
“Private investors have a real opportunity to play a role in getting that finance to the developers who need it. The lack of bank funding in the market means that the rates on offer can be very attractive for those who are willing to put some of their capital at risk.”
CapitalRise’s IFISA product allows individuals to invest in development loans to property developers, with returns in 2024 having averaged 9.26% per year.
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