What Falling Property Values Mean for Private Credit and Non-Bank Lending in 2026
Australia's housing downturn is reshaping who funds property deals. As banks retreat, private credit is stepping into the gap — and choosing the right lender matters more than ever.
Australia's housing downturn has arrived, and it is reshaping who funds property deals. National dwelling values fell 0.4% in June, the largest monthly drop since December 2022, according to Cotality's Home Value Index (PropertyUpdate). For brokers and intermediaries, the question is no longer whether the market has turned. It is where capital comes from now that it has.
Higher rates and falling values are squeezing borrowers
The RBA raised the cash rate three times this year, in February, March and May, lifting it to 4.35% and unwinding all of 2025's cuts before holding in June (RBA). Values have followed rates down. Sydney fell 1.2% in June and 3.2% over the quarter, while Melbourne dropped 1.0% and 2.6% (PropertyUpdate). Brisbane and Perth are holding up better, but their momentum is easing too. Higher servicing costs and softer collateral values are a difficult combination for bank credit committees, and a growing number of applications no longer clear the assessment.
Banks are retreating, and the funding gap is widening
The pull-back is structural, not cyclical. Basel capital rules make construction lending expensive for banks to hold, so the majors have steered toward mainstream mortgages and away from mid-market development (Switchboard Finance). That leaves a gap in the $10 million to $50 million project range, the townhouse, medium-density and infill deals that make up much of Australia's supply pipeline. APRA has also tightened prudential settings, slowing bank turnaround at exactly the moment developers need certainty (Broker Daily).
Private credit is stepping into the space banks have left
Non-bank lenders now fund a meaningful share of construction and development activity that banks will not touch. Around half of local private credit AUM supports real estate construction and development finance, even though private credit remains under 2% of total financial system assets (RBA Financial Stability Review). With Housing Accord targets stalling, that role is only growing (The Urban Developer). Speed, flexibility and asset-specific underwriting are the advantages that matter in a falling market.
The takeaway for brokers
A downturn does not remove deals from the market. It moves them. When values soften and banks retreat, disciplined non-bank capital becomes the difference between a project that funds and one that stalls. This is also a market that rewards care. Falling collateral values mean loan-to-value discipline, conservative feasibility and genuine asset selection matter more than ever.
With so many deals moving into the non-bank and private credit space, choosing who you work with matters just as much as securing the funding. Private credit is largely unregulated, and that carries its own risks. Lender quality, funding stability, track record and how a book is managed through a downturn vary widely. The lenders who win this cycle will price each deal on its merits rather than lending to a headline, and the brokers who protect their clients will back operators who can prove discipline and staying power.
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Frequently asked questions
Why are Australian banks pulling back from property development lending in 2026?
The retreat is structural rather than cyclical. Basel capital rules make construction and development exposures expensive for banks to hold, so the majors have concentrated on mainstream mortgages, while APRA's tighter prudential settings have slowed turnaround. The result is a persistent funding gap in roughly the $10 million to $50 million mid-market project range.
What role does private credit play in Australian property finance now?
Non-bank and private credit lenders fund a meaningful share of the construction and development activity banks will not touch. Around half of local private credit AUM supports real estate construction and development finance, even though private credit remains under 2% of total financial system assets. As bank appetite narrows, that share is growing.
Do falling property values make private lending riskier?
Falling collateral values raise the importance of discipline rather than the case against lending. Conservative loan-to-value ratios, genuine feasibility and careful asset selection matter more in a softening market. Well-run lenders price each deal on its merits rather than lending to a headline.
What should brokers look for in a private lender during a downturn?
Lender quality, funding stability, track record and how a book is managed through a downturn all vary widely, and private credit is largely unregulated. Brokers protect their clients by backing operators who can demonstrate discipline, staying power and a consistent approach to pricing risk.