New figures reveal a stark reality for smaller UK property investors: bank lending to them has plummeted by 14% over five years. According to Karis Capital's analysis, the value of bank lending to these businesses dropped from £216 billion in March 2021 to an estimated £186 billion by March 2026. In contrast, larger property investment firms have seen their borrowing soar – up 20% to a staggering £375 billion over the same period.
Karis Capital attributes this stark disparity to banks viewing smaller investors as higher-risk propositions. As a result, these businesses are increasingly turning to alternative funding sources. Despite the current market offering "compelling value" due to falling prices, many smaller investors are finding traditional lenders unwilling to provide finance – a trend highlighted by Nicholas Christofi, CEO of Karis Capital.
The shift towards specialist mortgage lending is growing rapidly, with estimates suggesting it will expand by 68% from £32 billion in 2023 to £54 billion by 2029. This surge reflects the rising demand for non-traditional financing solutions among smaller investors, a trend that mirrors broader changes in UK property investment where institutional capital is increasingly dominant.
This shift in lending coincides with heightened activity in the UK housing market following the introduction of the Renters’ Rights Act in May. Reports indicate an increase in buy-to-let landlords selling properties at reduced prices, with some properties changing hands rapidly. Christofi warns that this trend may be short-lived and that a structural change is underway, potentially having long-term implications for market accessibility and competition.
For UK businesses involved in property development or investment, these findings suggest the need to diversify funding strategies beyond traditional bank loans. The increased reliance on specialist lenders and alternative finance providers could reshape the competitive landscape, potentially favouring those with established relationships outside mainstream banking – a dynamic that also reflects the broader economic environment where lenders are becoming more cautious.