Alternative Lenders in Development Finance: Beyond the High Street

The UK development finance market has undergone a structural transformation over the past decade. Where once high-street banks and building societies dominated lending to property developers, today a diverse ecosystem of alternative lenders accounts for a substantial share of new origination. Private credit funds, challenger banks, specialist non-bank lenders, family offices, and peer-to-peer platforms have all established meaningful presences in the market. In our experience arranging development finance across the UK, alternative lenders now provide the majority of facilities for schemes below £10,000,000 GDV.

This shift has been driven by several factors. The regulatory environment post-2008 has made traditional bank lending more capital-intensive, reducing the appetite of high-street banks for development loans — which are classified as high-risk under Basel III capital rules. Simultaneously, low interest rates drove institutional capital toward alternative investments, including property debt, in search of yield. The result is a deep and competitive market that offers developers genuine choice in how they fund their projects.

For developers, the practical implication is significant. Alternative lenders typically offer higher leverage (65-75% LTGDV versus 55-65% from banks), faster execution (2-4 weeks versus 6-12 weeks), and greater flexibility in terms of borrower experience requirements, asset types, and deal structures. The trade-off is generally a higher interest rate — but as we will explore, the all-in cost comparison is not always as clear-cut as headline rates suggest.

Understanding the different types of alternative lender helps developers identify the right source of finance for their specific needs. Private credit funds are typically the largest and most sophisticated players. These are institutional vehicles — often managed by established asset managers — that raise capital from pension funds, insurance companies, and sovereign wealth funds to deploy into property debt. They can write large tickets (£5,000,000-£100,000,000+), offer structured solutions combining senior and mezzanine debt, and have dedicated underwriting teams with deep property expertise. Rates from private credit funds for senior development finance typically start at 7.5-9%.

Specialist non-bank lenders occupy a similar space but tend to be smaller and more nimble. Many are funded by a combination of institutional lines and private capital, allowing them to move quickly on transactions. These lenders are often the sweet spot for schemes of £1,000,000-£10,000,000, offering competitive rates (7-10%), high leverage (up to 70% LTGDV), and fast execution. They are typically the most active lenders in the SME development market and have developed expertise in smaller residential and mixed-use schemes.

Challenger banks — regulated banking institutions that have launched in the past 10-15 years — bridge the gap between high-street banks and non-bank lenders. They combine the pricing benefits of deposit funding (rates from 6.5%) with a more entrepreneurial approach to underwriting. Several challenger banks have become significant players in development finance, particularly for experienced developers with larger schemes. Their regulated status provides borrowers with an additional layer of protection.

Family offices and high-net-worth individuals represent a smaller but growing segment of the market. These lenders can be highly flexible, offering bespoke structures that institutional lenders cannot. However, their capacity is limited, and terms can vary widely. Peer-to-peer platforms, once tipped as disruptors of the development finance market, have settled into a niche role — primarily funding smaller bridging loans and light refurbishment projects rather than ground-up development.

The comparison between alternative and traditional lenders is not simply about interest rates. It is about identifying the right tool for the job, based on the developer's circumstances and the specific requirements of the scheme. Below we compare the key decision factors that developers should weigh when choosing between bank and non-bank finance.

On leverage, alternative lenders typically win. A bank might offer 55-60% LTGDV for a standard residential scheme, while a non-bank lender could offer 65-70%. This difference is material. On a scheme with a GDV of £4,000,000, the difference between 60% and 70% LTGDV is £400,000 — capital that the developer can deploy elsewhere. For developers who need to maximise leverage, combining senior debt from a bank with mezzanine finance from a non-bank lender is an increasingly popular structure.

On speed, alternative lenders are consistently faster. The absence of banking regulation committees, simpler approval hierarchies, and technology-enabled processes mean that a non-bank lender can typically move from application to completion in 2-4 weeks, compared to 6-12 weeks for a bank. For auction purchases, distressed acquisitions, or situations where a site is at risk of being lost to a competing bidder, speed is not a luxury — it is a necessity. Our guide on bridging loans for auction purchases explores this dynamic in detail.

On cost, the picture is more nuanced than headline rates suggest. A bank facility at 6.5% with a 2% arrangement fee and £25,000 in legal and monitoring costs may have a similar all-in cost to a non-bank facility at 8% with a 1.5% arrangement fee and £15,000 in ancillary costs, particularly for shorter-duration projects where the fee element is proportionally more significant. We always model the total cost of finance to ensure developers are comparing like with like.

In our experience, there are several scenarios where an alternative lender is clearly the better choice. The first is when the developer needs speed. If you have exchanged on a site with a 28-day completion deadline, or if you are purchasing at auction and need to complete within 20 working days, a non-bank lender with a fast-track process is the only realistic option. Banks simply cannot move at this pace for development finance.

The second scenario is when the scheme is unconventional. Alternative lenders are typically more willing to consider non-standard assets — permitted development conversions, mixed-use schemes, sites without full planning permission, or developments in locations that banks consider secondary. If your project does not fit the standard bank underwriting template, an alternative lender may be the only route to finance. We have arranged facilities for a wide range of non-standard projects, from church conversions to modular housing schemes, exclusively through alternative lenders.

The third scenario is when the developer is less experienced. Many banks require a minimum of three completed developments before they will consider an application. Alternative lenders, while still requiring evidence of competence, are generally more flexible — some will lend to first-time developers provided they have an experienced contractor and a straightforward scheme. This accessibility has made alternative lenders the primary funding source for developers building their track records.

Finally, alternative lenders are the go-to choice for developers who need higher leverage or more flexible structures. Whole-loan facilities combining senior and mezzanine in a single package, stretched senior up to 75% LTGDV, and 100% build cost funding are all products that are primarily available from the alternative lending sector. If you are unsure which type of lender is best suited to your project, submit your details through our deal room and we will recommend the most appropriate options.

While alternative lenders offer significant advantages, developers should be aware of certain risks and considerations. The most important is the security of the lending relationship. Unlike regulated banks, some non-bank lenders are not authorised by the FCA or PRA. This does not mean they are untrustworthy — many of the most reputable development lenders in the UK are unregulated — but it does mean that the protections available to borrowers differ. Developers should conduct due diligence on any lender they are considering working with, including understanding the lender's funding source, track record, and approach to managing loans in distress.

Loan documentation from alternative lenders can be more complex than standard bank facilities. In particular, developers should pay close attention to default provisions, cure periods, and the circumstances under which the lender can call in the loan or appoint a receiver. We always recommend that developers appoint experienced development finance solicitors to review loan documents, regardless of the lender type. The cost of good legal advice is a fraction of the potential cost of entering into an unfavourable facility agreement.

Finally, developers should be aware that some alternative lenders fund themselves through short-term capital markets. In periods of market stress — as occurred in September 2022 — these lenders may face their own liquidity challenges, potentially affecting their ability to honour drawdown commitments. This risk is mitigated by working with established lenders with diversified funding sources. In our practice, we only recommend lenders with whom we have established relationships and whose funding structures we have assessed as robust.

The alternative lending sector shows no signs of retreating. If anything, the trend toward non-bank lending is accelerating. Global institutional investors — including pension funds, insurance companies, and sovereign wealth funds — continue to allocate capital to UK property debt strategies, attracted by the yields on offer and the collateral backing. This capital supports the expansion of existing alternative lenders and the launch of new ones.

We expect several trends to define the sector over the coming years. First, consolidation — as smaller lenders merge or are acquired by larger platforms seeking to scale. Second, increasing institutionalisation — with alternative lenders adopting more rigorous governance, reporting, and risk management frameworks as their investor base matures. Third, product innovation — including green lending products linked to sustainability benchmarks, digital-first application processes, and more flexible structures for build-to-rent and modular construction.

For developers, the growing role of alternative lenders is unambiguously positive. It means more choice, greater competition, and better terms. The key is to work with a broker or adviser who understands the full landscape and can match your scheme to the most appropriate lender. In a market with over 200 active providers, identifying the right one for your specific circumstances is as important as the terms themselves. To explore your options, start a conversation through our deal room and we will guide you through the alternatives available for your next project.