How Development Finance Lending Criteria Have Changed Since 2020

To understand how development finance lending criteria have changed, it is useful to establish a baseline. In early 2020, the UK development finance market was mature, competitive, and broadly supportive of developers across the experience spectrum. The Bank of England base rate sat at 0.75% (soon to fall to 0.10%), and lenders were competing aggressively for business. Typical terms for an experienced developer included 65-70% LTGDV at rates of 5-7%, with arrangement fees of 1-1.5% and minimal pre-sales requirements.

First-time developers could access finance from a reasonable pool of lenders, typically at 55-60% LTGDV and rates of 7-10%. The experience threshold was relatively low — several lenders would consider borrowers with no prior development experience, provided they had a suitable contractor and a straightforward scheme. Sustainability criteria were largely absent from lending decisions, and most lenders assessed schemes purely on financial metrics: GDV, build costs, profit margin, and exit strategy.

The COVID-19 pandemic in March 2020 marked the beginning of a period of unprecedented volatility that would reshape lending criteria across the development finance market. Understanding the trajectory from that point to the present helps developers appreciate the current requirements and anticipate future changes.

The immediate impact of COVID-19 on the development finance market was severe but short-lived. In March-April 2020, several lenders temporarily withdrew from new lending, citing uncertainty about property values, construction programme delays, and the broader economic outlook. Those that remained open tightened criteria significantly — reducing LTGDV ratios by 5-10%, increasing rates by 1-2%, and in some cases requiring pre-sales commitments before advancing any funds.

The construction industry itself faced disruption. Site closures, social distancing requirements, material supply chain issues, and labour shortages all impacted build programmes. Lenders responded by extending facility terms (typically by 3-6 months at no additional cost), demonstrating a pragmatic approach to an unprecedented situation. In our experience, the vast majority of lenders worked constructively with developers during this period, recognising that enforcement action in a disrupted market would not serve anyone's interests.

By the second half of 2020, the market had largely recovered. The Government's stamp duty holiday created a surge in residential demand that supported sales values and new-build absorption rates. Lenders reopened for business, and criteria began to normalise. However, the pandemic had introduced a new consideration into lending decisions: programme risk. Lenders became more attentive to programme contingency, supply chain resilience, and the developer's ability to manage disruption. These considerations have persisted and are now embedded in standard underwriting practice.

The pandemic also accelerated changes in working patterns that had direct implications for development. The shift toward remote and hybrid working reduced demand for office space in many locations while increasing demand for homes with dedicated work spaces and access to outdoor areas. This trend supported the PD conversion market (as offices became surplus to requirements) and shifted buyer preferences in ways that developers needed to reflect in their designs. Lenders began to factor these demand shifts into their assessment of scheme viability.

The most significant shift in lending criteria came during the rapid interest rate rises of 2022-2023. As the Bank of England base rate climbed from 0.10% to 5.25%, the development finance market underwent a fundamental repricing. But the changes went beyond rates — they affected every aspect of lending criteria.

Leverage was the most visible change. Many lenders reduced their maximum LTGDV from 65-70% to 55-60% for senior debt. Some imposed outright caps on facility size, and several lenders that had previously offered 70%+ LTGDV pulled back to 60% or below. This deleveraging reflected genuine concerns about the risk of falling values (which would erode the lender's security margin) and the impact of higher rates on scheme viability. For developers, this meant needing significantly more equity to fund their projects — a £5,000,000 GDV scheme that previously required £1,500,000 of equity now needed £2,250,000.

Pre-sales requirements became more stringent. Where previously most lenders were comfortable with no pre-sales (relying instead on comparable evidence and market strength), many introduced minimum pre-sales thresholds — typically 25-50% of units to be sold or reserved before funds would be advanced. This was a rational response to the uncertainty in the sales market, but it created a chicken-and-egg problem for developers who needed finance to start construction but needed construction progress to generate sales interest.

Developer experience requirements also tightened. Several lenders that had previously considered first-time developers closed their criteria to borrowers with fewer than two or three completed projects. The threshold for larger facilities (above £5,000,000) increased further, with some lenders requiring five or more completions and evidence of managing projects of similar scale. This flight to quality was understandable from a risk perspective but created genuine challenges for developers trying to build their track records. Our guide for first-time developers provides detailed advice on navigating these heightened requirements.

As the base rate peaked and began to stabilise, the development finance market entered a period of gradual normalisation. Lenders, reassured by the resilience of the residential market and the absence of a severe downturn, began to ease criteria. Leverage crept back up — from the 55-60% lows to 60-65% — and rates moderated as competition returned. However, the criteria did not simply revert to pre-2022 levels. The experience of the rate-rising cycle had permanently raised lenders' awareness of certain risks.

Stress testing became a standard feature of underwriting. Lenders now routinely model the impact of a 10-15% fall in GDV on their loan exposure, and schemes that do not demonstrate resilience under these stress tests face reduced leverage or higher pricing. Build cost contingency expectations increased from 5% to 7.5-10%, reflecting the experience of cost inflation during 2022-2023. Programme contingency of 2-3 months became standard, as lenders sought to protect against delays that could increase interest costs and extend the facility term.

The assessment of exit strategy also evolved. Lenders became more rigorous in testing the realism of exit assumptions. For sale-led exits, they require more granular comparable evidence and often commission their own desk-top market assessment alongside the formal valuation. For refinance exits, they want evidence that term finance will be available at the assumed terms. This heightened scrutiny is unlikely to relax, even as market conditions improve — it reflects a genuine maturation in underwriting practice.

One positive development during this period was the easing of pre-sales requirements. As the residential sales market stabilised and buyer confidence returned, most lenders dropped or reduced their pre-sales thresholds. In the current market, pre-sales are generally only required for schemes in secondary locations, larger developments with extended sales programmes, or borrowers with limited track records. For mainstream residential schemes in established markets, pre-sales are helpful but not essential.

The development finance lending landscape in 2026 represents a new normal — more rigorous than the pre-2022 era but less restrictive than the peak of the tightening cycle. Understanding the current baseline helps developers structure their applications for success.

On leverage, the market standard for experienced developers is 60-65% LTGDV, with 70% available from select lenders for strong schemes. First-time developers can access 50-60% LTGDV from a narrower pool of lenders. Mezzanine finance is available to bridge the gap, typically bringing total leverage to 75-80% of GDV. On rates, the range is 6.5-10% for senior debt, depending on lender type, leverage, and scheme specifics.

Experience requirements have settled at a higher level than pre-2022. Most mainstream lenders require at least two completed developments for standard schemes and three to five for larger or more complex projects. First-time developers remain fundable but through a smaller pool of specialist lenders. The quality of the team around the developer — contractor, architect, project manager — carries more weight in the assessment than it did previously.

Sustainability criteria are now a genuine factor in lending decisions. Several lenders offer enhanced terms for schemes meeting specified environmental benchmarks, and a small number will only lend for schemes that meet minimum sustainability standards. This trend is likely to strengthen over time, as discussed in our guide on green and sustainable development finance. Developers should view sustainability not as a hurdle but as an opportunity to differentiate their applications and access better terms.

Lending criteria are not static — they evolve in response to market conditions, regulatory requirements, and lender experience. Developers who understand this dynamic and adapt their approach accordingly will consistently achieve better outcomes than those who treat lending criteria as fixed.

Looking ahead, we anticipate several further evolutions. First, technology-driven underwriting will become more prevalent, with lenders using data analytics to assess scheme viability, market strength, and borrower track records more efficiently. This should reduce decision times and potentially improve access to finance for schemes with strong data support. Second, regulatory changes — including potential updates to capital requirements for property lending — could affect the terms that bank lenders can offer, potentially further shifting market share toward non-bank providers.

Third, climate-related financial risk assessment is likely to become a more prominent feature of underwriting. Lenders are beginning to consider the flood risk, overheating risk, and long-term energy performance of the assets they are lending against. Schemes in areas at high risk of flooding or with poor energy performance may face higher pricing or reduced leverage as lenders price climate risk into their assessments.

For developers, the practical advice remains consistent regardless of where we are in the cycle: prepare thoroughly, present professionally, build in appropriate contingency, and work with advisers who understand the current market. If you want to understand how your scheme would be assessed under current lending criteria, submit your details through our deal room and we will provide a clear assessment of the finance available to you.