Bank lending to private developers has fallen by 25% from its pre-Covid peak in 2017, resulting in a £1bn funding shortfall, according to a report by MERA Investment Management, Property Week can reveal.

CGI of MERA and Nicholas King Homes’ Cranleigh scheme, Surrey

Citing Bank of England data, MERA has revealed that lending to private sector developers fell to £13.6bn in February 2026, down from the £15.4bn peak in July 2017.

MERA said the £1bn shortfall of funding to support current construction levels indicated a growing reliance on private capital.

It also reported a significant rise in private credit investment across the UK, as investors seek stronger returns through property debt and equity investment opportunities.

Edward Matthews, chief executive of MERA, said: “Looking at the data, it is fair to deduce that private capital has picked up the funding shortfall and this lending stream is set to continue to grow.”

He added: “Appetite amongst private investors for UK real estate has remained fairly robust as the non-bank lending market has stepped forward.

“That said, uncertainty around values, geopolitical pressures both overseas and domestically as well as the prospect of interest rates remaining high are all weighing on behaviour. Transactions are still happening but investors are being pretty selective and sticking closely to fundamentals.”

MERA recently formed a joint venture with Nicholas King Homes to support the development of 110 family homes on the Amber Waterside site in Cranleigh, Surrey, with a gross development value of around £55m.

MERA will provide preferred equity alongside Nicholas King Homes, with senior debt from Paragon Development Finance. Work on the scheme got under way in April.

“Working with a trusted, experienced partner like Nicholas King Homes, with a strong track record in the South East, allows us to invest with confidence in high-quality schemes that meet real local demand,” Matthews added.

The housebuilder said partnering with MERA had enabled it to unlock the capital to accelerate the scheme’s development, highlighting the growing role of private credit in UK residential development.

In April, MERA unveiled plans to deploy £100m in UK real estate development and investment equity opportunities.