A new report by MERA Investment Management, the specialist real estate lender and investor, in collaboration with researchers at the London School of Economics (LSE), shows that private lending has fundamentally reshaped UK real estate finance, with non-bank lenders now the dominant source of funding for a growing majority of brokers.
The report, The Rise of Non-Bank Lending, draws on a survey of active UK real estate finance brokers and finds that the structural shift toward private lending has accelerated sharply since the pandemic.
From the margins to the mainstream
In 2019, more than three-quarters of brokers reported that private lending accounted for half or less of their financing activity. By 2025, that picture had inverted: nearly 68% of brokers now source more than half of their mandates from non-bank lenders, with the largest single group (48%) placing 51–75% of deals with private lenders. Alternative lenders now account for 41% of outstanding UK commercial real estate loans, with debt funds alone representing 22% of the market.
Edward Matthews, CEO, MERA Investment Management says: “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.”
According to brokers, property developers are the most active users of private lending, cited by nearly four in five respondents, followed by private investors and high-net-worth individuals. Most deals fall in the £2m–£10m range, a part of the market where banks have become increasingly reluctant to lend, and where borrowers often need faster decisions and more flexible terms than traditional lenders are willing to offer. Flexibility is considered the most significant benefit of private lending, cited by 92% of brokers, followed by faster execution times (74%), and a greater appetite for risk (58%).
The report also documents significant concerns. Higher interest rates are the most commonly cited risk, identified by two-thirds (67%) of brokers, followed by liquidity concerns (60%) increased likelihood of lenders moving to enforce loans where borrowers run into difficulty (43%). The sector’s resilience has not yet been tested by a serious market downturn, and the Bank of England has warned that problems could arise if investors need to pull their money out faster than the underlying assets can be sold.
The report also points to the conflict in the Middle East as a source of broader economic uncertainty. Rising oil prices could increase inflation, making it harder for central banks to cut interest rates. For borrowers in the private lending market — where financing costs are already higher than traditional bank debt — a prolonged high-rate environment would put further pressure and make it harder to refinance or exit positions profitably.
Professor Olmo Silva of the London School of Economics, comments: “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.”
Despite the risks, private lending’s rise reflects a structural evolution in UK real estate finance rather than a cyclical shift. Brokers anticipate the trend continuing: over 40% expect private lending to account for 51–75% of client funding going forward, and nearly one in five expect it to represent more than three-quarters of their mandates.
As the market matures and geopolitical risks and economic headwinds weigh on sentiment, the report recommends that private lenders prioritise disciplined underwriting, prudent deployment of leverage and careful liquidity management.
