Developers cautiously return as UK residential market stabilises

The UK residential development market is beginning to show early signs of stabilisation after a prolonged period of disruption.

In a recent podcast discussion, Edward Rothery, Director at Colliers, and Matthew Taylor, Managing Director of UK Residential Development at Consulco Group, explored how developers, investors and lenders are gradually re-engaging with the market as conditions begin to improve.

While confidence has not fully returned, sentiment across the sector is noticeably stronger than it was 18 to 24 months ago, when rising construction costs, volatile interest rates and political uncertainty caused many projects to stall.

Watch the full discussion below:

Sales activity starting to recover

According to the discussion, residential sales activity is beginning to improve after reaching historic lows.

Some large housebuilders are reporting improved sales rates, moving from one or two sales per month on certain schemes to four or six units. While still modest, this represents an early indicator that buyer demand is gradually returning.

However, the recovery is uneven across the UK.

Northern cities and parts of Scotland are expected to see stronger value growth in the near term, largely due to relative affordability. Southern markets and London have been slower to recover, although London’s long-term fundamentals remain strong.

Affordability still the key constraint

The speakers agreed that demand itself is not the core issue facing the residential market.

Instead, affordability continues to be the primary constraint, particularly in London where higher property prices and mortgage costs have limited buyer activity.

As mortgage rates ease and lenders broaden product availability, both speakers expect conditions to improve, supporting renewed activity across the development sector.

Greater cost certainty helping developers

Construction costs remain significantly higher than pre-2020 levels, but the pace of cost inflation has slowed.

This stabilisation is allowing developers to plan projects with greater confidence and revisit schemes that previously looked unviable.

Even modest reductions in finance costs are proving significant in a low-margin environment, particularly when combined with improved predictability around build costs.

Development finance available but more selective

The discussion also highlighted that capital remains available for residential development from banks, alternative lenders and institutional investors.

However, lenders are now applying more disciplined underwriting and closer scrutiny of risk compared to earlier market cycles.

Encouragingly, refinancing activity is increasing and many mid-tier and specialist lenders are taking a more commercial approach, particularly when working with experienced SME developers.

Changing strategies among developers

Developers themselves are adapting to the changing environment.

Rather than pursuing large, high-density projects that can face planning delays or regulatory hurdles, many are shifting towards smaller developments, refurbishment projects and property conversions that offer more predictable timelines and lower capital requirements.

Buyer preferences are evolving as well, with demand increasingly focused on well-designed, affordable homes without high service charges or extensive amenity costs.

Outlook: alignment will determine which projects proceed

Looking ahead, the speakers suggested that opportunities are beginning to re-emerge in the market, but projects will only progress where several factors align.

Developers, investors and lenders must ensure that construction costs, property values, finance structures and buyer expectations are all balanced.

As Matthew Taylor summarised during the discussion, the market is not short of demand — but schemes will only move forward where those elements are properly aligned.

“This commentary reflects market conditions at the time the conversation was recorded. Market dynamics continue to evolve, and recent developments may impact the outlook described.”

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