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Rich individuals are increasingly making multi-million-pound loans to fellow wealthy people who need money faster than banks can provide or who might not pass “know your customer” checks, according to their advisers.
Loans of between £3mn and £10mn are becoming more popular as banks step back. But they can also be worth more than £50mn, secured by assets including property, company shares, art, jewellery, yachts and private jets.
Adam Russ, Deutsche’s global head of wealth management and business lending, said lenders often knew borrowers through their social circles: “When we lend money, whether you’re a bank or a person, it starts with character — it’s the first thing you assess.”
One area of investment attracting private lenders is real estate as property developers face financing gaps.
The declining attractiveness of London prime property, due to higher interest rates, stamp duty and the departure of rich people from the UK, has made development opportunities riskier and less appealing to banks.
Advisers said wealthy individuals were also replacing Russian investors in the UK after many were sanctioned following the invasion of Ukraine in 2022.
Laura Uberoi, head of private wealth finance at law firm Addleshaw Goddard, said the wealthy needed to borrow because they often had little cash on hand.
“The trick to being a multibillionaire is having zero liquidity — borrowing is consistently needed by ultra-high net worths to fund their ongoing liquidity needs as well as their next business venture,” she said.
Nazir Dewji, global department leader for real estate at law firm BCLP, said: “We’ve seen family offices creating debt arms over the last two to three years as an alternative way of investing into real estate.”
Some loans are given out before development starts, he added, while others were designed to support acquisitions.
London-based Cohort Capital started making loans six years ago as a family office and has since put together syndicates to make loans. By the end of this year, it will have originated £1.5bn in loans from 15 family offices, which provide 90 per cent of the capital, according to co-founder Matt Thame, with the rest coming from banks.
Cohort makes short-term loans that average £15mn for acquisitions and refinancing, and has experienced a rise in business as banks retreat, he said.
One example of a Cohort loan was for a student residence in Paddington, west London, being bought for £85mn. “We funded £60mn in 10 days,” Thame said, charging its typical interest rate of 12 per cent.
Giuseppe Ciucci, executive chair of high net worth adviser the Stonehage Fleming Group, said family offices were often much faster than banks at providing funds at a “very attractive rate”, particularly when property is pledged as security. “It’s become more of a go-to solution than it used to be.”
One private banker said a client was an expert in a very small slice of London super-prime property and was therefore comfortable assessing collateral valuations. While many lenders do “know your customer” checks, in this case he did not want to.
The head of a single family office, who did not want to be named, said: “With real estate there’s a big advantage that it’s quick and easy to take charge over the assets.” Lenders can register charges over an asset at the Land Registry.
Other types of assets were less appealing, the head of the family office added: “Things like yachts and art are more complex; I would be concerned about them. Famously, yachts move.”
Uberoi said simple loans started at interest rates of 10 per cent. However, lending using “your funky things” as collateral, such as land without development permission, “can go into the twenties and people will pay it because they want quick money — they will pay it because no one else will lend because the assets are risky”.