Banks ramp up construction lending

Some 62 per cent of respondents expect major banks to increase construction lending in 2026, up from 35 per cent in last year’s survey.

The 2026 Debt Capital Markets Survey, published by commercial mortgage advisory firm Stamford Capital, also found that while lenders have tightened their risk approach over the first half of the year, their appetite for lending remains at near-record highs.

Canvassing 110 lenders across the major banks, second-tier banks, and non-bank sector, the survey found that despite a risk-tightening response to the conflict in the Middle East, appetite for lending remains resilient.

Overall, some 94.5 per cent of lenders said they planned to grow their loan books in 2026, marking the second-highest result on record behind the 97 per cent recorded in 2025.

Majors back construction lending once more

While the percentage of respondents who forecast an uptick in construction lending among the majors in 2026 has almost doubled, sentiment has moderated among non-banks.

More than 65 per cent expect non-banks to increase construction lending (down from 73 per cent in 2025), and 53 per cent tip growth in investment lending (down from 65 per cent).

Peter O’Connor, managing director at Stamford Capital, said that while non-banks continue to dominate the construction lending landscape, expectations for construction lending growth are increasingly aligning with the major banks.

“Banks are catching up with non-banks, and it’s putting real pressure on credit settings as lenders compete for market share,” O’Connor said.

“For developers, this could mean more competitive terms, as banks soften their approach in pursuit of high-quality deals.”

Competition reshapes lending terms

Against the backdrop of a competitive debt market, presale requirements have hit their lowest levels since Stamford Capital’s survey began in 2018.

Having reportedly stalled larger projects in the past, some states, including NSW and Western Australia, have introduced presale guarantees to help developments get off the ground.

Stamford Capital’s survey found that more than 37 per cent of construction lenders now require no presales, up from 29 per cent in 2025. At the same time, more than a quarter of lenders require presales of between 35 and 60 per cent, up from 18 per cent last year.

By contrast, just 8.1 per cent of lenders require presales of 60–100 per cent, compared with almost half (45 per cent) five years ago.

Stamford Capital said these changes reflect how lenders are increasingly competing on structure and flexibility rather than price alone. Some 70 per cent of lenders said they are competing through a mix of pricing, leverage, and relaxed conditions, rather than margin alone.

“Lenders now have fewer moves to win deals. We’re seeing greater willingness to back projects earlier, which helps feasibility – one of the biggest bottlenecks to delivery. As those settings ease, more projects are likely to stack up and move forward, which is critical in the current supply-constrained environment,” O’Connor said.

After a year of intense competition and repricing across the lending market, respondents suggest loan margins may be stabilising. While 62 per cent expected margins to tighten in 2025, more than three-quarters (76 per cent) now believe they will remain unchanged in 2026, with only 12 per cent forecasting further compression.

In construction lending, 62 per cent expect bank loan margins to hold steady, while 23 per cent foresee further reductions. Sentiment is less clear among non-bank lenders, where expectations are split between stable margins (45 per cent), decreases (28 per cent), and increases (26 per cent).

Middle East hits risk analysis, not credit supply

The uncertainty produced by conflict in the Middle East has affected lender behaviour, but most are still keen to grow their loan books.

Ninety-four per cent of respondents said that they were planning on growing their loan books, while 69 per cent said they were targeting an increase of at least 15 per cent.

Nonetheless, when subsequently asked on the impact of the war in the Middle East, 56 per cent said that the Iran war has changed loan appetites or risk profiles – or both.

Of those respondents, 36 per cent said it has affected their risk profile only, leaving their appetite for deals intact.

Across lenders, the impact diverges. For non-banks and private lenders, the war is impacting decisioning more profoundly, with over half of respondents saying that it is influencing decision making.

Second-tier banks are evenly split, while 59 per cent of major banks report no material change.

“The Iran conflict has added a new layer of complexity for lenders,” O’Connor said.

“Anecdotally, it’s been less about pulling back and more about being more selective in how capital is deployed.

“There is still an abundance of capital in the market, but it’s being allocated with a higher degree of scrutiny and greater protections against ongoing volatility.”

Office sector rebounds

Australia’s commercial property market has also shown signs of resilience, with office assets continuing their recovery despite ongoing economic uncertainty.

According to the survey, 64 per cent of respondents believe the office sector is in recovery, largely unchanged from 63 per cent a year ago but marking a significant improvement from 2023, when 63 per cent viewed the market as being in decline.

Residential property is also gaining momentum, with 45 per cent of respondents identifying the sector as being in an early growth phase – the strongest reading since 2021. However, sentiment towards residential development sites is more mixed, with 33 per cent expecting further growth, while 32 per cent believe the sector has already peaked.

Confidence is also returning to retail property, where 35 per cent of respondents see the sector in an early growth phase, and a further 29 per cent believe it is in recovery.

Industrial property, meanwhile, appears to be cooling after several years of strong performance, with 64 per cent of respondents saying the sector has reached its peak.

[Related: National home values flatline as prices stall across capitals]

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