Development Finance in 2025: Navigating Cost Pressures in a Softer Rate Landscape

As we move through the second half of 2025, the development finance landscape presents a mixed picture: a cautiously optimistic rate environment paired with lingering construction cost pressures.

For developers, that means opportunity – but only if deals are structured smartly.

Construction Costs: Still Elevated, Still Unpredictable

While material price spikes have eased from their 2022–2023 highs, the industry continues to grapple with:

• Skilled labour shortages
• Delays in local authority planning and inspections
• Volatile subcontractor pricing

For many schemes, build costs remain 10–15% higher than pre-pandemic levels. That margin can squeeze profit viability – and can also affect how lenders assess risk, especially on higher-LTV or complex projects.

Interest Rates: A Window of Opportunity?

At the same time, monetary policy is starting to ease. With unemployment rising and inflation softening, many market watchers (including us) expect a 25bps rate cut by the Bank of England as early as August. While lenders don’t move in lockstep with the Bank, sentiment is shifting.

We’re already seeing:

• Slight repricing from select lenders
• Tighter spreads for experienced developers
• More flexible mezzanine and equity options

This environment presents an opportunity to reassess stalled projects, restructure existing funding, or explore sites that now pencil in more favourably under revised borrowing terms.

How Developers Should Be Thinking

In today’s climate, smart funding isn’t just about the lowest rate – it’s about flexibility, timing, and knowing how to work with lenders.

At Mortimer Street Capital, we’re advising clients to:

• Stress-test funding against fluctuating costs and realistic timelines
• Engage lenders early to shape the structure, not just react to it
• Consider blended stacks (senior + mezz/equity) to improve leverage without overextending
• Revisit existing debt—there may be room to unlock capital or optimise term

Is It Time to Build?

If you’re sitting on a consented site, or mid-process on planning, this is the moment to run the numbers again.
With a more favourable rate environment coming into view – and the right funding strategy – viability may be closer than you think.

As always, we’re here for the conversation – whether you’re restarting a mothballed scheme, reassessing your capital stack, or looking to move quickly on a new opportunity.

Get in touch to discuss how we can support your funding needs.