UK bank lending to SME property developers has almost halved since 2017, as regulatory changes and cost pressures create a funding gap that can be filled by alternative lenders.

Bank of England data, cited by UK prime property development finance platform CapitalRise showed that the value of bank loans to SME property developers has fallen from £9.7bn in January 2017 to £4.9bn in November 2024.

Banks have instead focused on lending to the country’s largest property developers. Their loan volumes to these firms increased by 25 per cent over the same period, from £5.6bn to £7bn.

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Lending to larger developers enables banks to lend in larger lots and lower their costs, increasing overall returns, CapitalRise said.

The retrenchment of banks from SME property development projects has contributed to the shortage in new housing being built in the UK.

Data from the Federation of Master Builders, cited by CapitalRise, found that SME housebuilders only deliver 12 per cent of UK homes now, compared to 40 per cent of homes 40 years ago.

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CapitalRise says that alternative lenders can play a critical role in supporting smaller property developments.

“Smaller property developers can’t rely on bank lending in the way that they used to. Following regulatory changes that came in the wake of the 2008 financial crisis, many of the traditional institutions have felt the need to step back,” said chief executive Uma Rajah.

“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, more bespoke developers is vital.”

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