Private lending is on the cusp of change

It is a fascinating – possibly nervous – time for private credit. While only representing a sliver of the property lending market, recent regulatory developments are sowing the seeds for change.

As it stands, private credit, encapsulating tax, family office and institutional investors, has less than half a percentage point share of the residential mortgage market, per CBRE Group research published in July. That figure increases to 4.2% of commercial lending and 26% of the residential development segment.

While real estate private credit is currently worth an estimated $50 billion (to put it into context, Australia’s real estate sector is worth over $12 trillion), CBRE estimates that this will increase to $90 billion by 2029, driven primarily by residential development and commercial lending.

Like the wider alternative lending space, brokers often turn to private credit to facilitate riskier, higher‑LVR loans not commonly serviced by traditional lenders. But the rapid growth of the private credit sector has brought increased regulatory scrutiny along for the ride.

ASIC has been on a tear, issuing interim stop orders on several top‑tier credit funds while promising to increase its oversight and scrutiny of the industry in the year ahead.

Prominent industry experts see this as a challenge as well as an opportunity.

“Yes, regulators are watching the private credit space more closely,” says Royden D’Vaz (pictured right), general manager – distribution and partnerships at private lender Assetline. However, from Assetline’s perspective, “that’s not a deterrent; it’s validation”.

“Oversight is likely to target transparency, investor protection and systemic risk, not to eliminate private lending altogether,” D’Vaz explains.

Matthew Porch (pictured left), head of distribution at Aquamore Finance, adds, “More transparency is probably the positive force to come out of increased oversight”, although he maintains that “regulation” is the wrong term to use here.

“More ‘regulations’ aren’t necessarily a good thing, but more accountability on the true risk position that certain deals present – and how these are mitigated properly – will give the space more legitimacy and will benefit everyone from investors through to brokers and borrowers,” Porch explains.

The regulatory spotlight on private credit has indeed been intensifying, with recent enforcement actions taken against some of the biggest players in the private credit space, including La Trobe Financial, which has served as a warning for the wider industry.

ASIC slapped two stop orders on two La Trobe Financial products, with the regulator suggesting the target market for the funds may have implied an “inappropriate level of portfolio allocation given the risks of the fund”. The stop orders did not relate to the funds’ performance, liquidity, advertising or the product disclosure statements, and the stop orders were swiftly lifted.

While a headache for the company, La Trobe Financial’s response to the stop orders was praised by other players in the industry, who saw it as a benchmark for transparency and compliance.

“If regulation goes too far, it could really restrict access to funding for these businesses” - Matthew Porch, Aquamore Finance

But such instances serve as a reminder of the regulatory risks at stake for the private credit sector, and the need to be on the front foot as the watchdogs turn their gaze to other players in the industry.

Porch hopes that this increased oversight from ASIC will bring all players into “some kind of benchmarked standard in regard to lending”, which will make some operators “accountable for the decisions they have made in regard to credit risk”.

He adds, “This consistency will also be good for brokers who I am sure can find private lending a bit of a minefield in regard to who is doing what and when.”

However, striking the wrong regulatory balance risks doing damage to an important segment of the lending market for small business and non‑standard borrowers locked out of traditional financing avenues.

Preparing for regulatory showdown

“My biggest concern is that if ASIC starts to overregulate the non‑coded commercial lending space, it could make it much harder for small businesses to obtain working capital and make fast, flexible decisions,” says Porch.

“The reason this space has traditionally been unregulated is to keep things accessible for small and medium enterprises. If regulation goes too far, it could really restrict access to funding for these businesses.”

However, “it’s imperative lending standards do not slip or are allowed to degrade to the point credit risk becomes unmanageable and starts to cause a systemic issue”, Porch adds. “I can completely see why ASIC is trying to understand the space a little better.”

“Oversight is likely to target transparency, investor protection and systemic risk, not to eliminate private lending altogether” - Royden D’Vaz, Assetline

Porch notes that Aquamore has a strong credit and operations team, “which ensures compliance with both our institutional warehouse facility and our Australian Financial Services Licence”.

“We have to undertake a quarterly audit and answer to trustees on every dollar that comes in and out of the business, so our compliance obligations are always top of mind. We undertake hindsight and spot‑check reviews on our files to continue building our experience and understanding of where we might have gone wrong in assessing previous transactions.”

D’Vaz described a similar process, adding, “At Assetline, we proactively adopt bank‑like governance and responsible lending frameworks to stay ahead of any formal regulation.”

Red flags, green flags

“Established private lenders like Assetline who have a solid track record and institutional backing tend to have more sophisticated and diversified funding structures,” says D’Vaz. These often include warehouse credit lines, securitisation, investment funds or institutional partnerships.

“By contrast, smaller or newer private lenders often rely on simpler and more limited funding sources, such as personal or partner capital, joint venture agreements or high‑yield capital,” he continues.

“Because their funding base is narrower and more relationship‑driven, they may face liquidity constraints and offer smaller loan sizes or higher rates to manage risk and maintain margins.”

When choosing a private lender to work with, D’Vaz recommends brokers ask themselves the following questions:

• How long has the private lender been in business?

• What is their reputation in the industry?

• What is their track record with regulators?

• What is their loan book size?

• Have they done this loan previously? (With an experienced private lender, chances are they have seen this scenario before.)

• Who are they affiliated with in the industry? Are they members of industry bodies like the MFAA or FBAA?

In Porch’s view, one glaring red flag is the presence of large upfront fees on transactions payable before an approval is secured.

Some lenders, explains Porch, charge due diligence or application fees before they have even looked at the deal, giving a false sense of appetite in order to attract these fees, saying yes before they have even understood the transaction.

As for green flags, “lenders that are aggregator aligned, given the level of compliance aggregators quite rightly put their lenders through, should give you comfort as a broker in who you are dealing with”.

“Stable sources of funding is also a green flag. Don’t be afraid to ask where the money is coming from to fund the proposal,” adds Porch.

Meeting bespoke needs

In many ways, private credit is undergoing the same transformation the mortgage broking industry did in the aftermath of the banking royal commission.

The introduction of the best interests duty (BID) following the royal commission was a gigantic wake‑up call for the broking industry, ushering in a new era of compliance and regulation.

BID has only been a good thing for brokers: between 2021 (when BID came into force) and 2025, broker market share of new residential home lending has soared from below 60% to nearly 80%, bolstered by renewed trust in the broking industry among the general public.

Could private credit’s turn be next? It remains a small sliver of the Australian mortgage finance space, but history shows that nothing is ever set in stone.

As D’Vaz notes, “Over the past several years, we’ve seen tighter bank lending standards, especially in residential and commercial real estate; higher capital adequacy requirements forcing traditional lenders to pull back from non‑prime or complex borrowers; and increased demand for bespoke financing, where borrowers need flexibility on structure, speed or security rather than just rate.”

Private lenders like Assetline and Aquamore are helping to plug this gap left by traditional lenders, but growth will only come under the all‑seeing gaze of the industry watchdogs.