If you're planning a ground-up development or conversion project in 2026, the finance landscape looks markedly different from even twelve months ago. Base rate cuts through late 2025 and into early 2026 have filtered through to development finance pricing, and lender competition is genuinely increasing. Here's where things stand.
Senior Development Finance: Current Rates
Senior debt — the main facility that funds your build — is typically priced between 7% and 10% per annum (roughly 0.58% to 0.83% per calendar month). That's a meaningful improvement on the 8.5% to 12% range we were seeing through much of 2024.
The best rates are reserved for experienced developers with strong track records, working on straightforward residential schemes in proven locations. A first-time developer building four houses in a secondary location will sit at the higher end of that range. A PLC building 50 apartments in Zone 2 London will be at the lower end, or possibly below it.
What Drives Your Rate?
Lenders assess development finance risk across several dimensions, and each one affects your pricing:
- Loan-to-cost (LTC): Most senior lenders cap at 65% to 75% LTC. The lower your LTC, the better your rate. A scheme at 60% LTC will price tighter than one stretching to 75%.
- Developer experience: Track record matters enormously. Lenders want to see completed schemes of similar scale and complexity. First-time developers can absolutely get funded, but expect to pay a premium of 1% to 2% over an experienced borrower.
- Location: London and the South East still command the best rates. Regional schemes attract slightly wider pricing, and rural or tertiary locations wider still.
- Sector: Standard C3 residential is the most competitive. C2 (extra care), PBSA, and commercial carry additional risk premiums. Permitted development conversions can also attract wider pricing due to build quality concerns.
- Build type: New-build houses are simpler to underwrite than high-rise apartments. Schemes involving basements, listed buildings, or complex engineering will see higher rates and more conservative gearing.
Mezzanine Finance: Filling the Gap
Where senior debt covers 65% to 75% of costs, mezzanine finance bridges the gap between your senior facility and the equity you're putting in. Mezzanine is subordinated to the senior lender, which means it carries more risk — and that's reflected in pricing.
Current mezzanine rates typically fall between 12% and 18% per annum, depending on the deal. Some mezzanine providers work on a profit-share basis instead, taking 30% to 50% of the development profit in lieu of a fixed interest rate. Which structure works best depends on your scheme's margins and your appetite for sharing upside.
Combining senior and mezzanine can take your total borrowing to 85% or even 90% of total development costs, dramatically reducing the equity you need to commit. On a scheme with healthy margins, this can transform your return on equity.
Fees: What to Budget For
Beyond interest, there are arrangement fees to account for:
- Lender arrangement fee: Typically 1% to 2% of the gross facility, charged on completion. Some lenders charge on drawdown instead, which helps cashflow.
- Broker fee: Usually 1% of the gross facility. At developing.fund, our fee is success-based — you pay nothing unless we secure your facility.
- Valuation and monitoring: Expect to pay for an initial Red Book valuation (typically carried out by an RICS-registered firm appointed by the lender) and ongoing monitoring surveyor visits during the build. Budget around 0.3% to 0.5% of GDV for these combined.
- Legal costs: You'll typically cover both your own and the lender's legal fees. Budget accordingly — on a complex deal these can be significant.
What's Changed in 2026
Several factors are working in developers' favour this year. The Bank of England base rate reductions through late 2025 have reduced the cost of capital for lenders, and that's being passed through to borrowers. More significantly, lender appetite has increased. We're seeing lenders actively competing on pricing for good schemes — something that wasn't happening eighteen months ago.
The number of active development finance lenders has grown too. New entrants, particularly debt funds and family offices, are deploying capital into the UK development market. Our lender panel now includes over 110 specialist lenders, and we're seeing competitive terms from sources that weren't in the market two years ago.
Tips for Securing Better Rates
Based on what we see across hundreds of applications, here's what genuinely moves the needle on pricing:
- Present a professional appraisal: A properly modelled development appraisal with detailed cashflows signals competence to lenders. We produce these for every client — it's one of the most impactful things we do.
- Secure planning before approaching lenders: A scheme with detailed planning consent will always price better than one relying on permitted development rights or outline consent.
- Demonstrate pre-sales or forward commitments: If you can show any sales evidence — reservations, forward funding interest, housing association commitments — lenders will sharpen their pricing.
- Consider your structure: Sometimes a slightly more complex funding structure (senior plus mezzanine rather than a single stretched facility) can deliver a lower blended cost of finance overall.
- Use a specialist broker: A broker who knows the development finance market can identify lenders whose risk appetite matches your specific scheme, rather than taking a scattergun approach.
Development finance pricing in 2026 is the most competitive it's been in three years. If you're planning a scheme, this is a good time to be borrowing. The key is matching your project to the right lender at the right price — and that's exactly what we do.