UK Development Finance Market 2026: Rates, Trends and Outlook

The UK development finance market enters 2026 in a position of cautious optimism. After the turbulence of 2022-2024 — driven by rapid base rate rises, inflation in construction materials, and a subdued residential sales market — conditions have stabilised considerably. The Bank of England base rate has settled, giving lenders the confidence to sharpen pricing and increase leverage once again. In our experience arranging facilities across the country, we have seen a noticeable uptick in lender appetite since the second half of 2025, with more competitive terms available for well-structured schemes.

The market now comprises over 200 active lenders, ranging from high-street banks and challenger banks to specialist non-bank lenders and private credit funds. This depth of market is a significant advantage for developers. Competition among lenders has driven rates down from their 2023 peaks, and loan-to-gross-development-value (LTGDV) ratios have crept back up toward the 65-70% mark for experienced developers with strong track records. For a typical residential scheme in the South East valued at a gross development value of £5,000,000, a developer can now expect to secure senior debt at around 65% LTGDV with rates starting from 6.5% per annum.

However, the market is not uniformly bullish. Lenders remain selective about asset class, location, and borrower experience. Speculative commercial developments, schemes in secondary or tertiary locations without proven demand, and borrowers with limited track records continue to face higher pricing and lower leverage. The bifurcation between prime and secondary lending terms that emerged during the rate-rising cycle is still very much in evidence, and developers need to understand where their scheme sits on this spectrum before approaching the market.

As of early 2026, development finance interest rates for experienced developers range from approximately 6.5% to 9.5% per annum, depending on scheme specifics, leverage, and lender type. The most competitive rates — around 6.5-7.5% — are available from challenger banks and select non-bank lenders for schemes with LTGDV below 60%, a proven developer, and a strong location. At the other end, complex schemes, higher-leverage facilities, or first-time developers might see rates of 9-12%. These rates typically represent rolled-up interest, meaning no monthly payments are required during construction — the interest accrues and is repaid alongside the principal at completion.

Arrangement fees have largely standardised at 1-2% of the gross facility, though some lenders charge on net drawn amounts. Exit fees, which were increasingly common during 2023-2024, have become less prevalent as competition has returned to the market. We have arranged several facilities recently where the lender waived exit fees entirely as a competitive concession. Monitoring surveyor fees remain in the £750-£1,500 per visit range, with most lenders requiring inspections at each drawdown stage. Valuation fees for a scheme with a GDV of £3,000,000 typically come in at £3,500-£5,000 depending on complexity.

One notable trend is the return of interest rate caps and fixes. Several lenders now offer fixed-rate development finance facilities, allowing developers to lock in their cost of borrowing for the duration of the build. This is a welcome development for appraisal certainty. Where previously almost all development finance was variable-rate (typically a margin over a reference rate), developers now have genuine choice. Fixed rates typically carry a modest premium of 0.25-0.50% over equivalent variable products, but the certainty they provide can be well worth the additional cost.

Lender appetite in 2026 is strongest for residential-led schemes in established locations with demonstrable sales demand. Purpose-built student accommodation (PBSA), build-to-rent (BTR), and later-living developments are all attracting competitive terms from specialist lenders who understand these sectors. In our experience, a well-located BTR scheme of 50-plus units can now attract LTGDV of up to 70% from non-bank lenders, reflecting the institutional demand for completed stock in this sector.

Leverage has improved notably since the lows of 2023, when some lenders pulled back to 55-60% LTGDV. Today, 65% LTGDV is readily achievable for standard residential schemes, and stretching to 70% is possible with the right combination of borrower experience, scheme quality, and location. For developers who need higher leverage, mezzanine finance remains available to bridge the gap between senior debt and equity, typically bringing total leverage to 80-85% of costs or 75% of GDV. We have seen mezzanine rates ease from 15-18% during the peak of the rate cycle to 12-15% in the current environment.

The return of 100% build cost funding is another positive signal. Several lenders are now willing to fund 100% of construction costs (subject to overall LTGDV limits), which allows developers to direct their equity contribution primarily toward land acquisition. This structure is particularly attractive for developers who have secured sites at favourable prices and want to preserve cash for future projects. For a scheme with total costs of £2,500,000 and a GDV of £4,000,000, a developer might put in £1,000,000 of equity toward the land and borrow the remaining £1,500,000 for land balance and full build costs.

Several structural trends are shaping the development finance landscape this year. First, the continued growth of non-bank lending. Private credit funds and specialist development lenders now account for an estimated 40-50% of all new development finance origination in the UK, up from perhaps 25% a decade ago. These lenders offer speed, flexibility, and higher leverage than traditional banks, and they have proven resilient through the rate cycle. For developers, this means a wider range of options and genuine competition that drives better terms.

Second, technology is transforming the application and monitoring process. Several lenders have invested in digital platforms that allow developers to track drawdown requests, upload documentation, and communicate with their lending team in real time. Automated valuation models (AVMs) are being used to support initial underwriting decisions, reducing time-to-offer. While the fundamental credit assessment remains human-led, these tools are accelerating the process. We have seen offer timescales compress from 4-6 weeks to 2-3 weeks with digitally-enabled lenders.

Third, ESG considerations are moving from a nice-to-have to a genuine differentiator. Lenders are increasingly offering preferential terms — rate discounts of 0.25-0.50% or enhanced leverage — for schemes that achieve specified sustainability benchmarks such as EPC A or BREEAM Excellent. This trend is explored further in our guide to green and sustainable development finance. Developers who build sustainability into their appraisals from the outset are finding it easier to secure competitive terms.

Fourth, the permitted development regime continues to create opportunities, particularly for office-to-residential conversions in town centres and suburban locations. Lenders who were previously cautious about PD schemes have become more comfortable with the asset class as the track record of successful conversions has grown. Our guide on permitted development market trends examines this in detail.

The development finance market is not monolithic — terms vary significantly by region. London and the South East continue to attract the deepest pool of lender interest and, consequently, the most competitive pricing. A standard residential scheme in Greater London or Surrey with proven comparable sales evidence will typically command rates 0.5-1.0% lower than an equivalent scheme in a less liquid market. This reflects the lower perceived sales risk and the ease with which monitoring surveyors can access sites.

However, some of the most attractive development opportunities in 2026 are outside the South East. The Midlands and the North of England are seeing strong demand drivers — wage growth, infrastructure investment (HS2, levelling-up funding), and relative affordability — that are translating into robust new-build sales rates. Cities like Manchester, Birmingham, and Leeds are attracting significant development finance activity, and lenders are becoming increasingly comfortable with these markets. We have arranged facilities in Greater Manchester and West Yorkshire at rates that would have been unthinkable two years ago.

Scotland and the South West also offer compelling opportunities. Edinburgh and Glasgow benefit from constrained supply and strong employment markets, while Bristol and the wider South West are seeing population inflows that support residential demand. Regional development hotspots are examined in more detail in our dedicated guide to regional development hotspots in the UK. The key takeaway for developers is that lenders are increasingly willing to lend outside London, provided the scheme fundamentals are sound.

Our outlook for the UK development finance market through the remainder of 2026 is moderately positive. We expect interest rates to remain broadly stable, with potential for further modest reductions if the base rate trajectory continues downward. The competitive dynamics in the lending market — with non-bank lenders continuing to grow market share — should keep pricing disciplined and terms borrower-friendly.

The main risks to this outlook are a deterioration in the residential sales market (which would impact GDV assumptions and lender confidence), a resurgence in construction cost inflation, or unexpected macroeconomic shocks. Developers should stress-test their appraisals against these scenarios and ensure they have sufficient contingency in their budgets and programmes.

For developers looking to start new schemes in 2026, the message is clear: the market is open, terms are competitive, and lender appetite is strong for the right projects. The key is preparation. A well-structured application with realistic costs, conservative sales assumptions, and a credible exit strategy will attract the best terms. If you are ready to explore your options, submit your project through our deal room for a no-obligation assessment of the finance available for your scheme.