Build Cost Estimates for Development Finance: What Lenders Accept

Build costs represent the largest variable element in any development finance application. While land costs are fixed at the point of purchase and sales values can be independently verified through comparable evidence, build costs are an estimate of future expenditure that depends on design decisions, material choices, market conditions, and contractor availability. This inherent uncertainty is exactly why lenders scrutinise build costs so carefully. If your costs are underestimated, the project may run out of money before completion, leaving the lender with an unfinished building as security. If costs are overestimated, the developer may be drawing more finance than necessary, inflating the loan amount and the associated risk.

In our experience arranging development finance across the UK, build cost evidence is the single most common area where applications need strengthening. Developers often have a clear vision for their project, solid planning permission, and strong sales evidence, but present build costs that are either unsupported by evidence, insufficiently detailed, or inconsistent with market benchmarks. Getting this element right can mean the difference between a quick approval at competitive terms and a protracted negotiation that delays your project and costs you money.

The standard of build cost evidence required varies depending on the size of the scheme and the type of lender. A high-street bank funding a £10,000,000 development will expect more detailed cost evidence than a specialist lender funding a £500,000 conversion project. However, even at the smaller end of the market, the days of providing a single-page cost estimate and expecting approval are long gone. Every lender we work with requires structured, evidenced build cost information, and those that receive it approve deals faster and on better terms.

Competitive contractor tenders are the strongest form of build cost evidence. A tender represents a legally binding offer from a contractor to deliver the specified works at a stated price, which gives the lender confidence that the cost is achievable. Most lenders require a minimum of two competitive tenders, although three is preferred and increasingly becoming the standard requirement. The tenders must be based on the same specification and scope of works document to allow a meaningful comparison. If one contractor is pricing a higher specification than another, the comparison is invalid and the lender will recognise this immediately.

Each tender should be broken down into clearly defined work packages rather than presented as a single lump sum. The standard breakdown follows the RICS new rules of measurement and includes preliminaries, substructure, superstructure, internal finishes, services, and external works, with further sub-categories within each. For a residential scheme with total build costs of £1,200,000, a lender-ready tender might run to 15-25 pages of detailed pricing. This level of detail serves a dual purpose: it gives the lender confidence in the accuracy of the pricing, and it provides the monitoring surveyor with a clear framework against which to assess progress and certify drawdowns during the build phase.

When selecting contractors to tender, choose firms with relevant experience and appropriate capacity. A contractor who specialises in commercial fit-outs is not the right firm to price a ground-up residential development. Similarly, a one-person operation is unlikely to have the resources to deliver a 20-unit scheme. Lenders will assess the credibility of your chosen contractors, and tenders from firms with no track record in similar work will carry less weight. We recommend inviting contractors who can provide references from completed projects of similar scale and type, as this significantly strengthens the overall application.

A quantity surveyor cost plan is an independent professional assessment of the likely construction costs for your scheme. Prepared by a chartered quantity surveyor, typically a member of the Royal Institution of Chartered Surveyors, the cost plan is based on measured quantities taken from your architectural drawings and priced using current market rates. QS cost plans are widely accepted by lenders as evidence of build costs, particularly for larger or more complex schemes where the independent professional opinion adds valuable assurance.

The cost plan should be prepared to at least RIBA Stage 3 level of detail, which means the design is sufficiently developed for quantities to be measured with reasonable accuracy. A Stage 2 cost plan based on approximate areas and benchmark rates is useful for early-stage feasibility but is generally insufficient for a formal lending application. Expect to pay between £3,000 and £8,000 for a detailed QS cost plan on a scheme with a GDV of £2,000,000 to £5,000,000, depending on complexity. This is a worthwhile investment, as it not only supports your finance application but also provides a baseline against which to manage costs during construction.

Some lenders accept a QS cost plan as a substitute for one of the contractor tenders, giving you a combination of one QS report and one contractor tender instead of two tenders. However, most lenders still prefer to see at least two contractor prices, even if a QS cost plan is also provided. The ideal package is two or three contractor tenders supported by an independent QS cost plan that validates the tender pricing. This triple-layered evidence gives the lender maximum confidence and typically results in faster credit approval. As outlined in our application checklist, having all three forms of evidence is particularly valuable for first-time developers seeking to establish credibility.

The Building Cost Information Service, operated by the RICS, publishes benchmark construction cost data that lenders use as a cross-check against the costs presented in development finance applications. BCIS data is organised by building type, region, and specification level, and is updated quarterly to reflect current market conditions. While BCIS benchmarks alone are not sufficient to support a lending application, costs that fall significantly outside the BCIS range for the relevant building type and location will trigger additional scrutiny from the lender.

In 2026, BCIS median build costs for new-build residential in the South East of England are approximately £165 to £195 per square foot for standard specification, excluding external works and abnormals. In Greater London, costs run higher at £185 to £230 per square foot, reflecting higher labour costs and the logistical challenges of urban construction. The Midlands and North typically range from £130 to £170 per square foot. These figures are useful as a sense-check, but they are averages and your specific scheme may legitimately sit above or below the benchmark depending on design, specification, site conditions, and procurement route.

When presenting build costs, we always advise clients to include a cost per square foot calculation alongside the detailed breakdown. This makes it easy for the lender to benchmark your costs at a glance. If your cost per square foot is £220 in an area where the BCIS median is £170, include a brief explanation of why, perhaps because of high-specification finishes, basement construction, or challenging ground conditions. Proactively addressing potential questions saves time and demonstrates that you understand the cost drivers in your scheme. Lenders appreciate transparency, and a developer who can explain why their costs differ from benchmarks is more credible than one who simply presents a number without context.

A complete build cost breakdown for a development finance application should include every category of expenditure required to deliver the project from site acquisition to practical completion. Preliminaries typically represent 8-15% of total build costs and cover site setup, temporary services, scaffolding, site management, welfare facilities, and insurance. Substructure includes all below-ground works: excavation, foundations, ground floor slab, below-ground drainage, and any piling or ground improvement works. For schemes in areas with poor ground conditions, substructure costs can represent 15-20% of total build costs, compared to 8-12% for straightforward sites.

Superstructure covers the main building envelope: walls, floors, roof structure, roof covering, windows, and external doors. This is usually the largest single cost category, representing 25-35% of total build costs depending on the construction method. Internal finishes include plastering, screeds, tiling, joinery, kitchens, bathrooms, decorating, and floor finishes. Mechanical and electrical services cover plumbing, heating systems, electrical installations, fire detection and alarm systems, ventilation, and any renewable energy installations. External works include driveways, paths, landscaping, boundary treatments, external drainage connections, and utility connections.

Do not overlook abnormal costs, which are site-specific expenses that fall outside standard construction. Common abnormals include demolition of existing structures, asbestos removal, contaminated land remediation, diversion of existing services, party wall works, and section 278 highway works. These costs can be substantial. We recently arranged finance for a scheme in Greater London where demolition and contamination remediation added £180,000 to the build costs, equivalent to 12% of the total construction budget. Lenders expect abnormal costs to be separately identified and evidenced, as they represent a specific risk that needs to be assessed independently from the standard construction costs. Visit our deal room to get your build costs reviewed by our team.

Build costs vary significantly across the UK, and lenders assess your cost estimates in the context of the region where your scheme is located. The most expensive region is Central London, where all-in build costs for residential development routinely exceed £250 per square foot and can reach £350 or more for premium schemes. Greater London outside the centre typically ranges from £185 to £230 per square foot. The South East, including Kent, Surrey, Sussex, Hampshire, and Berkshire, generally falls between £160 and £200 per square foot, reflecting proximity to London labour markets and the associated cost premium.

The Midlands and North of England offer lower build costs, with Greater Manchester, West Yorkshire, and the West Midlands typically ranging from £130 to £170 per square foot for standard residential specification. Scotland, including Edinburgh and Glasgow, is broadly comparable to the northern English regions, though prime city centre schemes can command higher prices. These regional variations are well understood by lenders, and presenting costs that are appropriate for your location is an important credibility signal. A scheme in Lancashire priced at London rates will raise questions about whether the developer understands the local market.

Material and labour costs have stabilised in 2026 following the significant inflation of 2022-2024, but certain trades remain subject to premium pricing due to skills shortages. Bricklayers, roofers, and mechanical and electrical subcontractors continue to command rates above historic averages in most regions. Timber frame construction has become increasingly cost-competitive compared to traditional masonry, and we have seen a growing number of lenders become comfortable with modern methods of construction. If you are using timber frame, SIPs, or other MMC systems, ensure your contractor tender specifically covers the chosen construction method and that the contractor has relevant experience and certifications.

Present your build costs in a structured, logical format that follows industry conventions. Use a clear table with categories, sub-categories, quantities where applicable, unit rates, and totals. Include a summary page that shows total construction costs, professional fees, contingency, and total development costs. The summary should also express the total build cost as a cost per square foot and as a percentage of GDV, as these are the two metrics lenders use most frequently for benchmarking. A one-page summary followed by detailed backup is the format most lenders prefer.

Ensure consistency across all documents. If your development appraisal shows build costs of £1,400,000, your contractor tender should total the same amount. If there are differences, explain them clearly. Common reasons for differences include VAT treatment, the inclusion or exclusion of professional fees, and the treatment of developer’s preliminaries versus contractor’s preliminaries. Small discrepancies that are explained are acceptable; unexplained discrepancies undermine confidence and slow down the approval process. We always reconcile all cost documents before submission to ensure complete consistency.

Finally, keep your cost evidence current. Contractor tenders are typically valid for 30 to 90 days, after which they may be subject to price increases. QS cost plans should be dated within the last three months. If your application takes longer than expected to progress, be prepared to refresh your cost evidence. Lenders may ask for updated pricing if the original evidence is more than three months old at the time of credit committee, particularly in periods of material price volatility. Staying on top of cost evidence is part of presenting a professional, lender-ready application as described in our application checklist guide.