Key Considerations for Developers Seeking Finance in 2026

The UK real estate debt market has shifted significantly over the past 12 months. For developers who are active or planning to be, understanding where lender appetite actually sits right now is not a nice-to-have. It is the difference between a deal that gets funded and one that does not.

The Bayes Business School Commercial Real Estate Lending Report for YE 2025 is the most comprehensive independent dataset on UK real estate lending activity, drawing on responses from 73 lenders. The picture it paints is one of a market with genuine momentum but real complexity beneath the surface. Here is what experienced developers need to factor into their thinking.

Where lender appetite currently sits

Total new loan origination across the UK commercial real estate market reached £52.7bn in 2025, a 29% year-on-year increase and a new peak since 2015. That headline number is encouraging but the composition matters.

The market is busy, but a large share of that activity is refinancing-led rather than purely new acquisition-driven lending. Refinancing accounted for 60% of all new UK real estate lending while acquisition finance took a 40% share, according to the report’s headline analysis. For developers bringing new projects to market, that context is worth understanding.

Regarding lender mix, UK banks contributed 41% of new origination while debt funds contributed 31%, a figure that has grown considerably in recent years. International banks accounted for 23% and insurance companies, despite holding large books, supplied just 6% of direct new lending, though a significant share of insurance capital flows indirectly into debt funds.

The lender concentration at the top of the market is notable, with just six lenders accounting for 55%, or £29bn, of all new UK real estate lending in 2025. The largest ten lenders hold 53% of outstanding loans and originated 63% of new volume. As Arrif Ali, Managing Director of Firma Partners, explains: “For developers, lender selection is a strategic decision that shapes everything from pricing to speed to certainty of execution. Knowing which lenders are genuinely active before you approach them is perhaps the most undervalued part of deal preparation.”

Development finance specifically accounted for 16% of total new UK real estate lending in 2025, down from 22% at the mid-year point. That slowdown in the second half reflects lender caution about new project starts rather than a withdrawal from the sector. Outstanding UK development debt stands at £31bn, with a further £27bn of undrawn commitments. Debt funds now supply 56% of all development finance. For many development projects, debt funds are no longer a niche alternative to banks; they are a central part of the lender universe.

How pricing and LTV expectations have changed

The direction of travel on pricing has been clearly downward over the past 12 months and that compression has continued into year-end 2025.

Across investment lending, margins have moved down 25 to 50 basis points over the course of 2025. Prime office financing ended the year at 226bps, down from 249bps 12 months earlier. Prime logistics came in at 225bp while student housing investment financing averaged 249bps. These are significant moves in a 12-month period and reflect the intensity of competition among lenders chasing a limited pool of quality transactions.

For development finance, the pricing correction has been more measured but remains real. Pre-let commercial development ended 2025 at 383bps, down 16bps over the year while speculative commercial development pricing fell 33bps to 422bps. Residential development margins dropped to 479bps, the first time since 2020 that pricing has fallen below 500bps at an average level.

On loan-to-cost, the report also details that day-one LTCs for residential development have moved out to an average of 65%, with maximum LTCs for residential and pre-let commercial schemes reaching up to 90% in some cases. Among lenders quoting speculative development terms, the average LTC was 60%. These figures reflect general lender target terms rather than final agreed terms, which will vary by borrower, asset and business plan.

LTV on investment loans has also edged upward. Whole loans are available from banks and alternative lenders for prime assets up to 75% LTV, while residential investment loans can be found up to 90% maximum LTV.

Another dynamic worth watching closely is interest rate structure. In 2015, just 21% of outstanding loans were on a floating rate basis. By year-end 2025, that figure was 43%. The proportion of hedged loans has also declined substantially. With the two and five-year SONIA rates moving up again in Q1 2026, the cost exposure for unhedged borrowers is a live consideration in structuring any new facility.

What this means for development funding strategy

The data from the Bayes report surfaces some clear strategic points for developers approaching the market in 2026.

Firstly, ticket size possibly matters more than it used to. For development finance, 23 lenders included in the report considered development deals over £100m while 22 lenders looked at debt ticket sizes between £50m to £100m. The greatest development finance liquidity was for £20m to £50m debt tickets with 26 lenders active in this range, whereas only five reported lenders offered development finance tickets below £10m and three below £5m. Smaller projects have a wide range of lenders available, though the institutions covered by this report are largely focused on larger tickets.

Sector selection affects fundability significantly. Prime office and logistics remain the most widely financed asset classes, with 86% and 85% of surveyed lenders respectively willing to lend. For development finance, residential projects and student housing had more than 40 active lenders while logistics development finance was available from 49% of lenders. Speculative commercial development drew just 12 lenders prepared to quote terms. Of course, the fewer lenders there are competing for a deal, the less pricing leverage a borrower has.

Asset quality has increasingly become a lender prerequisite rather than a pricing input. The Bayes report indicates that EPC ratings are increasingly relevant to underwriting, with the majority of loan books expected to meet at least EPC E. Some lender comments also indicate tighter thresholds, including EPC C. Lenders are also placing weight on climate resilience and carbon targets. These are not soft considerations; they affect access to finance.

ESG factors are being integrated into underwriting in a way that is measurable. The Bayes report asked lenders to rank ESG factors in order of importance. Climate resilience scored highest followed by carbon targets and social impact. Biodiversity scored lowest but was still a considered factor. Developers who have not factored sustainability credentials into their project briefs will find themselves working with a narrower lender universe.

UK real estate loan covenants have also softened materially in the current market. An estimated 15 to 20% of loans are being written without any LTV or ICR covenants. ICR covenant levels of 1x to 1.1x are no longer unusual. While this reflects lender competition rather than improved credit quality, it does mean that developers should be actively testing what covenant flexibility is available rather than accepting standard terms.

Firma Partners’ position in the current market

At Firma Partners, we are active across residential, co-living, PBSA, commercial and mixed-use acquisition, development and stabilisation finance. We understand the market the Bayes report describes in-depth because we operate within it every day.

What the data confirms is something we see directly in our pipeline. Competition among lenders for quality borrowers and well-structured projects is real and it is producing better terms for the developers who know how to access it. At the same time, the market is not uniform. Lender appetite varies considerably by asset type, geography, ticket size and sponsor track record.

“The developers who will secure the best terms in 2026 are the ones who understand which lenders are actively closing deals at their ticket size and in their sector and what those lenders actually want to see. That preparation is the difference between having a competitive funding process or receiving just a single set of terms you have no leverage over” says Arrif Ali, Managing Director at Firma Partners.

We operate with a direct, founder-led approach because the decisions that shape a development finance facility need to be made by people who understand the risk first hand, not passed through layers of detached credit committees. For borrowers who want a lender that can move at pace and price competitively, that matters.

Key considerations for developers seeking finance in 2026

To summarise the practical takeaways for development finance strategy this year:

• Know your lender universe before you start your approach. The market is concentrated and knowing which institutions are active at your deal size and in which sectors is a meaningful part of deal preparation.
• Expect pricing to be competitive but not uniform. Average margins are down materially over 12 months, but the range between best and worst terms is wide. The deal you negotiate reflects the preparation you bring.
• Factor interest rate structure into your base case. SONIA rates have moved upwards in early 2026. With 43% of the market now on floating rate, unhedged exposure is a live risk. Your funding strategy should address this explicitly.
• Build in refinancing flexibility. Based on data covering 67% of Bayes survey participants, around 57% of all outstanding UK real estate debt is scheduled for repayment between 2026 and 2028. This represents a significant refinancing wall. Some of those borrowers will be competing for the same lender capacity as new development schemes. Earlier engagement with lenders reduces execution risk.
• Present your ESG credentials as part of your funding case. EPC ratings, climate resilience assessments and carbon targets are lender considerations now, not compliance exercises for later.

If you are planning an acquisition, development or stabilisation and want to understand what your funding options look like, speak to our team. We will give you a direct read on where the market sits and what we can do for you.