Bank lending to small and medium-sized property firms has declined 14% over the past five years, falling from £216 billion in March 2021 to £186 billion in March 2026, according to research from specialist real estate debt and insurance advisory firm Karis Capital.
Shift towards larger investors
The data indicates a significant reallocation of lending resources, with borrowing by large property investment businesses rising 20% to £375 billion during the same period. Karis Capital attributes the shift to banks viewing smaller property investors as higher risk.
Nicholas Christofi, CEO of Karis Capital, stated: “Smaller property investors should look beyond banks to take advantage of falling property prices. The market is currently offering very attractive buying opportunities, but many smaller property investors are finding their usual lenders are less willing to lend.”
Alternative lending growth
The specialist mortgage market is projected to expand significantly, with lending values estimated to grow 68% from £32 billion in 2023 to £54 billion in 2029. This growth reflects increasing demand from smaller investors seeking alternatives to traditional bank financing.
The trend mirrors broader changes in UK property investment patterns, where institutional capital has increasingly dominated certain market segments.
Christofi noted that “the boom in the UK bridging market and specialist mortgage market shows that alternative funding providers are willing to step in for smaller investors.”
Market conditions
The lending shift coincides with reported property sales by buy-to-let landlords following the introduction of the Renters’ Rights Act in May. According to Christofi, “a significant number of property assets are currently being sold at reduced prices,” though he suggested this opportunity “is unlikely to remain open indefinitely.”
The findings come as the UK housing market navigates regulatory changes and shifting investor sentiment. The contraction in bank lending to smaller investors represents a structural change in how property investment is financed, with potential implications for market accessibility and competition in the sector.