Alternative lenders step in as banks retreat and refinancing demand rises
The expansion of private credit is reshaping the UK’s real estate lending landscape as traditional lenders retreat, according to experts at London-based law firm Macfarlanes.
Dan Marriott (pictured left), real estate partner at Macfarlanes, said the rise of alternative lenders marks a fundamental change in the market, driven by evolving investment sources and a persistently lower interest rate environment.
“The sources of investment are changing,” said Marriott. “Higher interest rates have led to reduced transactions and stricter lending standards. “Similarly to the global financial crisis, more traditional lenders such as banks and insurers have scaled back.
“This void has been filled by alternative lenders. While major central banks are now on a rate-cutting path, the expansion of private credit is likely to be a permanent structural change. And it’s thanks to a regulatory-driven retrenchment of bank lending.”
Recently published research by Butterfield Mortgages also confirm that brokers are increasingly steering clients toward specialist lenders for complex financing needs. The study revealed that 61% of brokers now turn to specialist lenders when traditional options are unavailable.
Meanwhile, Marriott also pointed to broader shifts impacting the sector. He noted that operational real estate is responding to major forces such as changing demographics, advances in technology, reduced globalisation, and the push for sustainability. These factors, he said, are set to influence the market’s future trajectory.
Laura Bretherton (pictured right), finance partner at Macfarlanes, said that despite subdued transaction volumes, there are still opportunities for private credit players.
“In 2025 and into 2026, a vast number of the financings put in place between 2020 and 2022 (when transactional activity was at a peak) will mature,” Bretherton said. “We anticipate that ‘refinancing wall’ to offer opportunities for private credit to refinance existing bank debt.
“With banks being increasingly conservative in terms of the leverage they can offer, coupled with the regulatory constraints that they face in originating and holding commercial real estate loans, there is a potentially very large opportunity for private credit to step into the breach.”
Bretherton cautioned, however, that as private credit grows, there could be a shift in the risk environment.
“There is potentially a risk that as the number of credit fund lenders look to seize some of the opportunities in the current real estate market, some funds start to take on increased risk by, for instance, offering higher leverage, agreeing looser terms and lower pricing in order to win mandates,” she said.
“However, there appears to be sufficient prudence among sophisticated credit managers to minimise these risks, and lenders will look to differentiate themselves among an increasingly wide pool of potential lenders based on their relationships with sponsors and borrowers, the certainty and speed of execution that they can offer, and their ability to offer flexible financing solutions to meet their potential borrowers’ business plans.”
Bretherton added that refinancing activity is expected to remain a key focus over the coming year as market activity recovers.
“Lenders will need to focus on the ways in which they can differentiate themselves from other credit fund lenders, in order to win these mandates,” she said.
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