Property development finance – what brokers need to know – Cox

Construction costs are still volatile, valuations are under closer scrutiny, and lenders are adopting a more cautious stance.

For brokers, this means success lies in anticipating what lenders want to see, structuring deals with precision, and helping clients navigate both risk and opportunity. I am covering four areas that are shaping the market this year: how lenders are stress testing deals, the role of bridging, the rise of SME developers, and where the biggest opportunities lie.

How lenders are stress testing in 2025

Stress testing is not new, but lenders are applying it more rigorously. It goes beyond the basics of interest rate cover and now digs into construction costs, gross development value (GDV) sensitivity, and exit feasibility. With the risk of cost inflation still high, many lenders model scenarios where material and labour expenses increase by 10-15% mid-project.

Contractor risk is also in the spotlight. The rise in insolvencies among smaller builders has made lenders more careful about who they back and how deals are structured. As a result, lenders are asking for stronger evidence of contingency planning, supply chain resilience, and realistic project timelines.

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For brokers, the lesson is clear: presenting deals that already account for stress testing assumptions saves time and builds credibility with lenders. If a deal looks fragile under those conditions, better to address it upfront than hope it squeezes through.

Bridging to development: A flexible path

Bridging has cemented its place as a strategic tool for developers, particularly at the acquisition and planning stages. The speed and flexibility of bridging allow clients to secure sites quickly or add value through planning gains before moving into a development facility.

Yet, the transition from bridging to development is where many deals unravel. A mismatch in valuations between the two stages, planning delays, or cost overruns can derail the funding path. That’s where brokers add real value, ensuring that clients approach bridging with a clearly defined strategy, aligned lender, and documented exit route from day one.

Used correctly, bridging is not just a stopgap but an enabler of development opportunities that might otherwise be out of reach.

The continuing rise of SME developers

As a contrary to a point made above – while to some lenders, experience in contractors is a risk to assess and mitigate, SME developers are an increasingly important part of the market.

Many are stepping up from trade or contractor backgrounds to take on residential conversions and smaller mixed-use projects. For these borrowers, the right professional team and joint contracts tribunal (JCT) contract in place can give lenders the confidence they need. A growing number of funders are tailoring products to support these less experienced teams, provided the fundamentals stack up.

The challenge for SMEs remains around leverage, demonstrating capability, and managing cost inflation – but with the right structure, funding routes are opening up. Lenders are beginning to tailor products for this group, sometimes offering flexibility around track record or loan structure. However, SMEs still face challenges: tighter leverage options, the need to demonstrate capability, and exposure to sudden swings in build costs.

Opportunities to continue through 2025:

While scrutiny has increased, several trends are creating fresh opportunities for brokers and developers this year:

• Commercial-to-residential conversions: Office and retail space continues to be repurposed into housing stock. With government support for regeneration and strong local demand, this remains a key growth area for lenders and developers alike.
• Increased day-one leverage: Some lenders are becoming more flexible in offering higher initial leverage where the project fundamentals are strong, particularly when borrowers can evidence robust exit plans – for example, there being a rationale to refinance as well as to sell.
• Developer-exit bridging: Bridging facilities designed to support developers as they exit projects are gaining traction, providing breathing space to market units, refinance, or restructure. This is helping developers avoid forced sales and giving brokers more tools to manage project lifecycles.

Development finance in 2025 is tougher in some respects, but the appetite is still there for the right projects. Lenders are digging deeper into the numbers, exits and contractor resilience, which means brokers need to come armed with detail and foresight. Bridging remains a valuable tool when used with a clear plan, while the SME developer market offers plenty of opportunity for those willing to support clients earlier in their journey.

Commercial-to-resi conversions, higher leverage at day one, and developer-exit bridging are all signs that lenders are adapting to market needs.

For brokers, the key is to stay close to these shifts and position themselves as the person who can connect developers to the right solution at the right time.