More than four in five UK property developers now expect to use specialist finance as weakening confidence, persistent construction costs and planning delays place further pressure on development pipelines.

Octane Capital’s latest quarterly survey found that 83% of developers anticipate using specialist funding to navigate current market conditions, up from 72% during the first quarter of 2026. Expected use of bridging finance increased from 40% to 44%, while the proportion planning to use development finance rose from 24% to 29%.

The increased demand for funding has not been accompanied by greater confidence in the viability of new projects. Only 23% of respondents now expect UK property-market conditions to improve during 2026, compared with 35% in the previous quarter. More than three-quarters expect conditions to remain challenging.

Developers are also becoming considerably more cautious about committing to schemes. The proportion saying they are less likely to proceed or break ground has increased from 37% to 57%, while high build and labour costs remain the most frequently identified barrier. Planning delays and uncertainty are the next most significant obstacle.

The figures describe a market in which specialist finance is becoming more important, but not necessarily because developers are confidently expanding. In many cases, alternative debt is being considered because the assumptions underpinning a proposed or existing scheme have weakened.

Land values may have been agreed before construction costs increased. Planning may have taken longer than expected, extending interest and professional expenditure before work begins. Sales values may no longer provide the margin originally forecast, while lenders can require more equity or reduce leverage when their own valuation and risk assumptions change.

In those circumstances, the central question is not simply where a developer can obtain another loan. It is whether the project remains capable of supporting the complete debt and equity structure required to deliver it.

Developer Sentiment Has Deteriorated Rapidly During 2026

The latest survey represents a significant change from the confidence recorded at the beginning of the year.

In January, Octane Capital reported that 67% of developers expected market conditions to improve during 2026. At that stage, 36% said they were more likely to progress projects, while 30% expected to scale back activity. Specialist finance was still important, but only 65% anticipated using it.

By the first quarter, the proportion expecting improvement had fallen to 35%. Reliance on specialist finance increased to 72%, while 37% said they were less likely to proceed with developments. Bridging usage was expected to rise from 33% to 40%.

The second-quarter figures extend that deterioration. Optimism has fallen to 23%, specialist-finance demand has reached 83%, and a majority of developers are now less likely to progress projects.

That does not mean development activity has stopped. It indicates that developers are becoming more selective about which sites can absorb current costs and financing conditions.

A scheme that appeared workable at the start of the year may now require a lower land value, more equity, different unit mix or stronger exit before a lender is prepared to support it. Developers with several opportunities may concentrate their capital on the project offering the clearest planning position and most defensible margin, leaving more marginal sites delayed or abandoned.

Specialist Finance Is Increasing Because Standard Structures Are Failing More Often

Bridging and development finance have always been part of the property-development market. Their growing use does not simply represent developers discovering a new type of funding.

It reflects the increasing number of situations in which a conventional senior-development facility cannot meet the whole requirement.

A site may require bridging finance while planning is completed or a development lender’s pre-commencement conditions are satisfied. A developer may need additional capital after build costs rise, or an existing lender may be unwilling to extend a maturity where sales have taken longer than forecast.

Specialist finance can provide greater flexibility around drawdowns, security, interest treatment and exit timing. It may also allow a lender to consider the project’s overall commercial rationale rather than applying a rigid product structure.

Octane Capital said the growth in demand reflects developers seeking greater speed, flexibility and certainty as transactions become more complex. The lender has also recently expanded its proposition following its acquisition by Aldermore, introducing fixed-rate options, lending against open-market value on qualifying cases and reduced development-exit pricing.

Those changes can improve execution for suitable projects. They do not alter the need for sufficient profit, contingency and borrower equity.

A more flexible lender can solve a structural funding problem. It cannot make an uneconomic development commercially sound merely by advancing more money.

Build Costs Are Eroding the Margin Before Work Begins

High build and labour costs were identified by 35% of developers as the largest barrier to progressing projects, according to the second-quarter survey. The issue has intensified from the first quarter, when 29% cited construction and labour expenditure as the principal challenge.

Development appraisals are particularly sensitive to cost increases because the developer’s profit sits behind the land, construction, professional, finance and sales costs.

A relatively modest increase across the build programme can remove a substantial portion of the projected margin. The problem is more severe where the site was acquired at a price based on earlier cost assumptions or where planning obligations have added further expenditure.

The cost risk extends beyond the main contractor’s figure. Professional fees, utilities, building-control requirements, insurance, warranties, marketing and finance all need to be included. A delayed project can also face repeated tender updates or additional preliminaries.

Contingency is therefore central to lender underwriting. Where the cost plan leaves little allowance for disruption, the lender may reduce leverage or require the borrower to contribute more equity before releasing further funds.

A developer seeking additional debt after the contingency has already been exhausted may have fewer options. Any incoming lender must understand why the shortfall arose and whether the remaining budget is now genuinely sufficient.

Planning Delay Can Become a Funding Problem Long Before Construction

Planning delays and uncertainty were identified by 29% of developers as a major barrier in the latest survey.

The direct cost of planning is only part of the problem. A delayed determination extends the period during which the developer carries the land, professional team and existing debt without generating sales or rental income.

Where the site was purchased using bridging finance, interest can continue to accrue while the development facility remains unavailable. Planning conditions, Section 106 negotiations or changes requested by the local authority may also require additional surveys, design work and consultant fees.

A delay can alter the market into which the completed scheme will eventually be delivered. Sales values, buyer demand and mortgage affordability may look different from the assumptions made when the application was submitted.

The longer the process takes, the greater the chance that the original appraisal becomes outdated.

Land and planning finance can provide additional time, but the lender will still need a credible route to consent and a clear understanding of the value both with and without the proposed permission.

A developer should not continue funding planning expenditure indefinitely simply because substantial money has already been committed. The remaining probability, cost and value of obtaining consent need to be reassessed independently of sunk expenditure.

A Stalled Scheme May Need More Than a Larger Senior Loan

Developers often approach a funding problem by calculating the additional amount required to finish the project.

That figure does not automatically represent the correct loan.

A lender must consider the total debt after the additional capital is advanced, the cost of completing the works and the value expected at exit. If the revised loan leaves insufficient headroom, another form of capital or a change in business plan may be required.

A scheme might combine conventional senior development debt with stretch-senior finance, mezzanine borrowing, preferred equity or joint-venture capital. Each layer carries a different cost, priority and degree of risk.

Senior debt is generally the least expensive because it is repaid first and benefits from the strongest security position. Mezzanine finance sits behind the senior lender and will normally command a higher return. Preferred equity and joint-venture capital can provide greater leverage but may require the developer to share profit, control or both.

The existence of these options does not mean they should all be used. Adding expensive capital can preserve a project while transferring most of the remaining return away from the developer.

The revised structure must leave enough profit to justify the developer’s continued time, risk and equity.

More Equity May Be Required Even Where the Loan Amount Has Not Changed

A developer can face an equity shortfall without asking the lender to increase the nominal loan.

If the lender’s valuation falls, the existing advance may represent a higher proportion of land or completed-development value than originally expected. The lender may then require additional borrower capital before works continue.

The same issue arises when costs increase while the lender’s maximum loan remains fixed.

A facility might have been agreed at a particular percentage of total development cost, with the borrower responsible for the balance. If the cost plan rises, the borrower must normally fund their agreed share of that increase and may also need to cover all expenditure beyond the lender’s maximum commitment.

This can create a serious problem for sponsors whose equity is already committed across several projects.

The developer may need to sell another asset, introduce an investor or reduce the scope of the scheme. Phasing can help where part of the site can be completed and sold independently, but it may increase the overall programme and duplicate some costs.

An independent review should establish not only how much equity has been spent, but how much genuinely accessible capital remains.

Phasing Can Reduce the Immediate Requirement but Change the Economics

Dividing a development into phases can reduce the amount of capital required at one time and allow early sales or refinancing to support later construction.

This can be effective where the site, planning consent and infrastructure permit each phase to operate and complete separately.

However, phasing does not always reduce the total cost. Contractors may price smaller packages less efficiently, while mobilisation, professional and finance expenses can be repeated. Infrastructure required for the whole site may still need to be funded during the first phase.

The lender will also examine whether the initial phase creates a genuinely independent exit. If later construction affects access, amenity or saleability, purchasers and valuers may discount completed units.

A phased structure therefore needs to be designed around both construction and finance. It should not simply postpone costs that will become unavoidable before the first units can be sold.

The Exit Is Becoming as Important as the Build

Development finance is generally repaid through unit sales, a bulk disposal or refinancing onto longer-term investment debt.

When buyer demand weakens or mortgage rates rise, the exit can take longer even where the construction programme has been delivered successfully.

Octane Capital has previously highlighted development-exit finance as a way for developers to refinance completed schemes rather than accepting discounted sales merely to repay an approaching facility. Falling swap rates earlier in 2026 had created some improved refinance windows, although market pricing and asset performance remain volatile.

An exit loan can remove the higher-cost development facility and provide additional time to complete sales in an orderly way. It may also release capital where completed units have sufficient value and the loan-to-value remains conservative.

The lender will still examine sales evidence, remaining units, marketing strategy and the borrower’s ability to service or roll up interest.

Where the original gross development value is no longer supported, development-exit finance cannot preserve it indefinitely. The developer may eventually need to reduce prices, sell in bulk or retain some units as rental investments.

The appropriate exit should be tested before construction begins and reviewed repeatedly as the scheme progresses.

Retaining Units Can Protect Value but Create a Different Finance Requirement

A developer facing slower sales may consider retaining completed units rather than accepting immediate discounts.

The properties could be refinanced onto buy-to-let, commercial investment or build-to-rent debt, generating rental income while the market improves.

This can protect headline values and create a longer-term asset base, but it changes the economics of the project.

The developer must consider rental yield, operating costs, management, tax and the amount of term debt supported by the completed income. Prime or low-yielding units may not produce enough rent to refinance the full development balance.

The ownership structure can also matter. Units intended for sale may have been developed within an entity or tax structure that is less suitable for long-term retention.

A mixed strategy can be effective, with some units sold to reduce debt and others retained where rental demand and financing are strongest. The decision should be based on actual rental and valuation evidence rather than a general expectation that values will recover.

Bulk Sales Can Provide Certainty at a Cost

Selling several units to an institutional investor, housing provider or another landlord can accelerate the exit and reduce marketing risk.

The buyer will usually expect a discount in exchange for acquiring multiple properties and providing execution certainty. The developer must compare that discount with the interest, agency, holding and incentive costs associated with selling units individually over a longer period.

A bulk disposal can be particularly attractive where the existing facility is approaching maturity or where slower individual sales threaten a default.

It may also provide a cleaner conclusion to a project, allowing the developer to release staff and capital for another opportunity.

The lender’s consent and security-release mechanics need to be understood. The sale proceeds from each unit or block must normally meet agreed release prices or reduce the loan to an acceptable level.

A discount that appears commercially reasonable may still be impossible if it leaves insufficient proceeds to obtain the lender’s release.

Stalled Construction Requires a New Cost-to-Complete Assessment

Partially completed projects present a different challenge from schemes that have not yet started.

The existing valuation may reflect works already undertaken, but an incoming lender must determine the genuine cost and risk of reaching completion. That usually requires an updated quantity-surveyor report, review of contractor arrangements and confirmation of planning and building-control status.

Work completed by a contractor that has left the site may need to be inspected, certified or remedied. Warranties, insurance and collateral warranties may also require restructuring.

The cost to complete can exceed the simple value of outstanding works because a new contractor may price the risks associated with taking over another party’s project.

The lender will also examine whether unpaid contractors or suppliers could assert claims or disrupt progress.

A rescue facility is most credible where the developer provides transparent information and a realistic revised programme. Understating the problem to secure additional capital can result in a second shortfall before the scheme is finished.

Existing Lenders Need to Be Engaged Before Maturity

Developers facing pressure sometimes delay contacting the lender because they expect a sale, planning decision or equity injection to resolve the problem shortly.

That can reduce the available options.

An incumbent lender may be willing to extend, amend drawdowns or approve a revised business plan where the borrower presents a clear explanation and credible solution. The discussion becomes more difficult after maturity, missed interest or breach of a facility covenant.

Octane Capital research published in 2025 found that developers under lender pressure frequently faced higher rates or fees, delayed drawdowns, demands for accelerated unit sales and threats to withdraw funding. Cost overruns, project delays and weaker market conditions were among the principal triggers.

A refinance can replace an uncooperative lender, but the incoming provider must complete due diligence, valuation and legal work before the existing facility becomes critical.

Early engagement preserves the possibility of an orderly extension or competitive refinancing process rather than an emergency re-bridge.

The Cost of Continuing Must Be Compared With the Cost of Stopping

Not every development should be rescued.

A sponsor who has invested substantial equity can feel compelled to continue because abandoning the project would crystallise a loss. Further expenditure may still deepen that loss if the completed value no longer supports the remaining costs and finance.

A viability review should establish the scheme’s current position rather than relying on its original appraisal. This includes the current land value, value of completed works, remaining construction cost, finance charges, professional fees and realistic sales or investment value.

The cost of continuing can then be compared with pausing, selling the site, introducing a joint-venture partner or completing only part of the proposed scheme.

Stopping also carries costs. Security, insurance, deterioration and planning conditions may need to be managed, while an incomplete site can attract a significant discount.

The objective is not always to produce a profitable outcome. In a distressed case, it may be to identify the route that protects the greatest amount of remaining capital.

Developers Need Independent Challenge Before Adding More Debt

A developer, existing lender and prospective funder can each view the same project through different assumptions.

The developer may remain confident in eventual sales values. The incumbent lender may focus on repayment timing, while the new lender concentrates on downside value and cost to complete.

An independent adviser can test the complete capital structure without being tied to one product or lender.

That review should challenge the gross development value, build programme, sales rate and contingency. It should also establish whether senior debt, mezzanine finance or equity produces a sustainable result.

The aim is not merely to obtain the maximum available leverage. Higher leverage can help a scheme proceed while also increasing interest, reducing contingency and leaving the developer with little margin for further disruption.

The strongest structure is the one capable of completing under a credible downside scenario, not the one that depends on every optimistic assumption being achieved.

Planning Consultants, Quantity Surveyors and Accountants Can Identify Pressure Early

The Octane Capital survey creates a particularly relevant opportunity for professional advisers working alongside developers.

Planning consultants often see delays and changing requirements before the funding consequences are fully understood. Quantity surveyors identify cost inflation, contingency use and drawdown pressure as the build progresses.

Development accountants can recognise when interest and professional fees are consuming more equity than forecast, while project monitors may detect programme or contractor problems before the lender formally intervenes.

These professionals are often better placed than the finance market to identify a scheme becoming vulnerable.

An early referral can allow the funding structure to be reviewed while the borrower still has negotiating power and accessible equity. By the time a developer approaches a new lender days before maturity, several of the most effective options may already have disappeared.

Specialist Finance Is Becoming Essential, but More Selective

The increase from 72% to 83% in expected specialist-finance usage demonstrates how central alternative lenders have become to UK development.

Bridging, development, refurbishment and exit facilities can provide the flexibility required to deal with planning, timing and sales uncertainty. They can also support projects that sit outside the standard parameters of mainstream banks.

However, increased demand does not mean specialist lenders will fund every scheme. As developers become more reliant on alternative capital, lenders are likely to place even greater emphasis on borrower experience, equity, cost control and exit evidence.

The borrower who presents a well-capitalised project with a clear planning position and defensible values may still attract strong lender interest. A scheme with exhausted contingency, uncertain permission and an unsupported exit will remain difficult regardless of how many specialist products exist.

The survey is therefore not simply evidence of an expanding lending market. It is evidence of a development market requiring more active restructuring and earlier viability decisions.

Before a Developer Abandons a Site, the Funding Structure Should Be Rebuilt

The deterioration in confidence should not lead to every delayed project being written off.

Some developments remain commercially viable but are constrained by a facility that is too short, an inflexible drawdown structure or a mismatch between planning and debt timelines. Others may work with a revised unit mix, phased build or combination of debt and equity.

A completed scheme may need development-exit finance rather than rushed sales, while a land loan could be replaced with a facility providing enough time to secure planning.

These are genuine restructuring opportunities.

Other projects will no longer support the required capital. In those cases, arranging a larger and more expensive loan can delay rather than solve the problem.

The correct response to Octane Capital’s findings is therefore not simply to promote greater availability of specialist finance. It is to identify which schemes deserve further capital and which require a controlled exit.

With 57% of developers now less likely to proceed and 83% expecting to use specialist funding, that distinction is becoming increasingly important.

Specialist finance can keep a viable project moving. The first task is proving that the scheme still works.