Mood

It's perceived that until the cards are turned over on the upcoming budget The Bank of England will continue to be cautious in its decision making, which may have been a sizeable factor in its decision last week to keep the base rate at 4% after a finely balanced vote. This signals that, while the path for rates may now be gently downward, borrowing costs are likely to remain “higher for longer” than many in the market had hoped. Inflation has cooled from its peaks but remains above target, and policymakers are cautious about moving too fast. For UK housing developers, especially the SMEs that we support, the implications are significant. In this week's blog, we explore how specialist finance partners, such as Invest&Fund, can help viable schemes continue to move forward, even in a sticky-rate environment.

To perhaps start with stating the obvious, development feasibility is highly sensitive to finance costs. A prolonged period of elevated rates raises the all-in cost of debt and narrows gross and net margins. That pressure is magnified where contingency has already been eroded by past build-cost volatility or prolonged pre-construction timelines. Even if swap rates and lenders’ margins drift down in 2026, last week's hold underscores that the relief will likely be gradual rather than abrupt. The good news here is that this isn't news to our sector; the reason we can openly discuss this is that we have been planning and projecting it for some time.

The problems accounted for include higher mortgage rates, which reduce buyer affordability and can elongate sales periods, particularly for first-time buyer stock and outer-commuter schemes. More extended sell-through periods increase exposure to interest during construction and sales, which can lead to higher interest costs and potentially necessitate term extensions or bridge-to-sale solutions. A slower exit can turn an otherwise healthy margin into a razor-thin return, especially for SME builders who rely on quickly recycling equity. This is something we have unpacked before in these blogs, the wider depletion of clients in our space is due to the slowing down of that cycle where cash can be recycled back into schemes, and it's perhaps our sector's first point of crucial assistance, we lend specifically to keep things moving, as we are incentivised ourselves to do so. Staged drawdowns against an independently monitored budget help match funding to the build curve, limiting interest accrual on undrawn amounts. Sensible contingency and cost-to-complete tests can identify issues early, allowing projects to continue moving forward even when conditions inevitably change. Time kills return like the sun kills a well-built snowman, so a transparent credit process, clear information checklists, and responsive decision-making can compress "time-to-cash", reducing the risk.

Holding at 4% last week likely reflects a central bank that sees progress on inflation but wants more evidence before making a decisive cut, which could indicate there is some set up here for micro businesses on the sidelines to begin coming back into housing, and we may see a solid indication of travel post budget, but policy caution, coupled with fiscal uncertainties, suggests developers should plan on today’s cost of money persisting into the medium term rather than banking on some fair weather thinking quick return to cheap debt. This is where Invest&Fund is living in today's world, not the world of the past, and in a “higher for longer” world, the right funding approach isn’t only about the headline rate, it’s about structure, certainty and speed, it's not about 'hopium' to capture and probably misuse a modern phrase, it's about always trying to capitalise on the now, what can we do now, to deliver for our clients, today. Many development loans capitalise interest during the build phase, with repayment from sales or refinance. For SMEs juggling subcontractor payments, prelims, and utilities deposits, rolled-up interest can be the difference between a scheme that breathes and one that suffocates under monthly servicing in old-fashioned funding models.

So, what's the bottom line here? Rates have stopped climbing, but this latest hold at 4% is a reminder that the “old normal” of ultra-low borrowing costs was a mechanism of the past; it was rates artificially repressed, rather than rates that worked for the economy. For UK housing developers, that means focusing on schemes that genuinely stack at today’s cost of capital, building in contingencies, and partnering with lenders who understand delivery risk at the coalface. Invest&Fund’s blend of tailored development finance, pragmatic structuring and transparent monitoring can help viable projects navigate a "higher-for-longer phase" should that unfold, and ensure good sites, good clients, and great ambition don't stall for want of the right partners.

Invest & Fund has returned over £330 million of capital and interest to lenders with zero losses, showing the rigour that governs our business.

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