This proportion is up from just 6% in 2019, according to a report – The Rise of Non-Bank Lending – by MERA Investment Management, in collaboration with the London School of Economics.
The report extrapolated data from a survey of active real estate brokers in the UK and also found that over nine in 10 – 92% – brokers named greater flexibility in deal structuring as the biggest advantage private lending had over banks. It concluded that since Covid, the structural shift towards private lending increased sharply.
The growing use of private lending
In 2019, over 75% of brokers said private lending accounted for 50% or less of their financing activity.
Six years on, however, and that number had risen; almost 68% of brokers reported sourcing over half of their mandates from non-bank lenders.
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Brokers said property developers were the most active users of private lending, as cited by four in five respondents. Private investors and high-net-worth individuals (HNWIs) were the next-most active.
MERA Investment Management’s report also collated opinions on concerns around using non-bank lenders. It noted that higher interest rates were the most commonly cited risk – as identified by 67% of brokers – followed by liquidity concerns (60%), and the increased likelihood of lenders moving to enforce loans when borrowers run into difficulty (43%).
‘Private lenders are now the first port of call’ for many
Edward Matthews, CEO of MERA Investment Management, said: “A decade ago, the role of institutional capital was stepping in to fill the gap left by banks retreating.
“Today, for many borrowers, private lenders are now the first port of call, with every sign pointing towards this being a structural, rather than cyclical shift.”
Professor Olmo Silva of the London School of Economics added: “Private lenders are likely to become more necessary, but also more exposed. Their opportunities will increase as banks continue to retrench.
“Yet their success will depend less on aggressive expansion and more on discipline, pricing, and resilience under stress.”
