Bank lending to property developers has fallen 54% in the UK over the past two years.
According to a study by property funding platform Saving Stream, bank lending in the industry has shrunk from £35.5bn to £14.9bn between April 2014 and April 2016, with alternative investors filling the gap.
The study said capital holding regulations following the financial crisis have made it harder for banks to lend against property developments, which are seen as “speculative”.
With requirements to have more money in reserve in case of defaults in developments, banks are becoming increasingly cautious about risky investments.
But while bank loans have slumped, the study showed that debt funds and peer-to-peer lending have been on the rise as lenders are able to get returns of up to 12% on their investments in property.
Liam Brooke, co-founder of Saving Stream, said: “The days when banks dominated the property development lending market are well and truly finished.
“This kind of lending is something that banks would like to do, but the regulatory restraints that have been put on them mean it isn’t viable for them.”
He added: “With interest rates on ISAs still bumping along the bottom, the opportunity to get up to 12% returns on a loan secured against property is something a lot of savers are waking up to.”
This follows research published by De Montfort University showing that 180 new lenders have entered the market since 2013, although banks are still the most active, with a market share of 34%.
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