UK-regulated banks have significantly reduced their lending to smaller property investors, with a 14% drop recorded over the past five years. This shift, highlighted by new analysis from Karis Capital, indicates a growing preference among lenders for larger corporate clients, potentially impacting the ability of small and medium-sized enterprises (SMEs) to capitalise on current market conditions.
According to Karis Capital's research, lending from UK banks to smaller property investment businesses decreased from £216 billion in March 2021 to £186 billion by the end of March 2026. In stark contrast, lending to larger property investment companies saw a substantial 20% increase, reaching £375 billion over the identical timeframe. The firm suggests that banks typically classify smaller property investors as higher risk, thereby limiting their access to traditional finance, while larger entities benefit from increased capital availability.
This decline in lending coincides with a period where lower property values have created potential buying opportunities across various segments of the market. For instance, data from Karis Capital indicates that average property prices in the City of London fell by 20.2% in the year leading up to 31 March 2026. Westminster experienced an 11.3% decline, and Kensington and Chelsea saw prices drop by 7.5% over the same period.
Nicholas Christofi, CEO of Karis Capital, noted that banks have increasingly focused on larger corporate lending and significant merger and acquisition transactions over the last five years, often collaborating with private equity-backed investors. He advised smaller property investors to explore options beyond traditional banks to take advantage of the current market, citing that non-bank lenders are often more accommodating to smaller deal sizes and custom finance arrangements. The growth in the UK bridging and specialist mortgage markets underscores the willingness of alternative funding providers to support smaller investors.
The research, which appears not to be peer-reviewed, sheds light on a significant trend in the UK property finance landscape. It suggests that while opportunities may exist for property acquisition due to price adjustments, the route to financing for smaller players is becoming more challenging through conventional banking channels. This could lead to a diversification of funding sources within the property investment sector, with a greater reliance on specialist lenders and alternative finance providers.