The lending landscape 

Where development finance was once dominated by the big clearing banks, the years following the global financial crisis opened opportunity to a wave of new lenders – challenger banks, funds, private institutions and peer-to-peer platforms. With around 900 active lenders now operating in UK Real Estate Finance (Money Age) the market has never been more crowded. 

Whilst competition can benefit borrowers particularly on price and leverage, securing funding is more than simple mathematics and knowing your lender, their delivery capability, their values and how they are likely to behave should all be key in the decision-making process. 

Early signs of stability  

After a tough couple of years in the development market, marked by supply chain disruption, inflation and rapidly rising finance and mortgage costs, it would appear that some level of stability appears to be returning. 

The ONS reports a 30.8% drop in housing starts since 2019 and planning applications remain low. Yet stabilised inflation, falling mortgage costs and improved material availability are supporting cautious optimism. 

Whilst the market remains challenging, developers seem more confident in cost certainty and most importantly, with mortgage rates coming down, there is more optimism in their exit. Hodge is unquestionably seeing an uptick in development finance enquiries but interestingly, the typical request is now closer to 70% LTGDV than the traditional position of 65% – with some of the stickiness of some sites and completed units taking longer to sell than originally expected, capital tends to be tied up for longer and we suspect that this is partly reason why.  Funders are always looking to adapt to current market conditions, and this position plays strongly to our advantage as Hodge can offer up to 75% LTGDV where appropriate to do so.  

Looking ahead in 2025 

There is an air of confidence about developers and developments that hasn’t been seen for a few years, a renewed energy in the market, particularly in sub-£10m developments. While geo-political uncertainty continues to influence sentiment, developers’ resilience is a constant. They find a way. 

Whilst pricing and leverage will always be important to developers, they become less important if delivery and timing of delivery are uncertain.  Confidence in a lender’s capability and speed of delivery are now more important than ever to our clients, an area we continue to focus on relentlessly.  

While it is undoubted that challenges remain, 2025 could still prove to be a much more active and positive period than any other in the last few years.