Signs of stabilisation after a challenging year

UK residential development land values remained flat through the final quarter of 2025. Uncertainty ahead of the November Budget, subdued buyer demand amid elevated mortgage rates, a restrictive planning and regulatory environment, and limited grant funding for registered providers continue to weigh on developers’ appetite for land.

Yet, positive signs are emerging. Government borrowing costs stabilised following the November Budget, which paved the way for mortgage rates to ease through January. Fiscal measures announced in the Budget should cause inflation to undershoot the Bank of England's (BoE) November forecasts, the BoE said in February, which should enable mortgage rates to ease further as the year progresses.

This has lifted sentiment among developers and housebuilders, with tentative signs of a recovery in appetite for land emerging through December and January. The prevailing view is that Q4 will mark the bottom of the market, though any recovery will hinge on borrowing costs easing further, alongside renewed government efforts to reduce planning and regulatory hurdles and the introduction of a support scheme for buyers at the foot of the property ladder.

Encouragingly, the government has signalled further policy adjustments may be forthcoming. In January, Housing Minister Matthew Pennycook noted that “live discussions” were under way on potential demand stimulus measures.

Suburbs challenged less than cities

Housebuilders operating in suburban and rural areas continue to face fewer obstacles than those in urban locations. The government’s grey belt policy, for example, is beginning to create new opportunities by providing clarity over redevelopment of lower quality land within the Green Belt. Sites in sustainable, well-connected locations - previously too complex or politically difficult to progress - are now attracting interest.

Large cities, particularly London, face unique challenges. However, development data confirms a tentative recovery in activity, though improvements are coming from a historically low base. Work started on nearly 2,300 private homes in the final three months of the year, according to Molior – that’s up from 986 in Q3, 882 in Q2 and 1,385 in Q1. London has an annual housing target of 88,000 homes yet private starts are down 84% in a decade, from 33,782 at the peak of the market in 2015 to just 5,547 last year.

Government policy reforms have so far focused on supply-side constraints. Additional technical staff at the Building Safety Regulator are helping to ease Gateway 2 delays, even if the process still places pressure on project timelines. Amendments to the Planning and Infrastructure Bill may reduce local opposition, and larger sites could soon benefit from a new fast track route. Separately, the Greater London Authority is consulting on reducing affordable housing thresholds and relaxing certain design requirements - changes that could unlock stalled schemes.

Still, these measures are unlikely on their own to deliver the government’s ambitious housing targets. A more significant increase in output will require deeper reform of the planning system. Likewise, the promised uplift in grant funding for affordable housing providers must be ringfenced to ensure it genuinely supports additional delivery rather than legacy financial pressures.

If progress is made on these fronts, early 2026 may offer compelling early cycle opportunities to acquire land at attractive values.

A tentative shift in buyer sentiment?

Results from Knight Frank’s Q4 survey of small and volume housebuilders reflect the challenges still facing the market. Some 57% of respondents reported a decline in site visits and reservations during the quarter, with fewer than 10% recording an improvement. Buyer sentiment, the UK economic outlook and planning delays were cited as the most significant constraints.

Almost half of respondents said land supply remains limited, with many site owners unwilling to transact at today’s pricing. Still, the survey reveals early signs of optimism. Nearly 30% of developers expect reservations to rise in Q1, 57% anticipate stability, and only 14% expect a further decline. More than half plan to start more homes in the quarter ahead.

Overall, the picture at the turn of the year is one of stabilisation rather than meaningful recovery. Pricing appears to have found a floor, sentiment has improved modestly, and activity is beginning to lift from very low levels. However, the pace and durability of any upturn will depend on further easing in borrowing costs and tangible progress on planning reform and buyer support. While leading fixed-rate mortgage deals are expected to fall below 3.5% this spring, easing affordability constraints at the margins, a dedicated buyer support scheme would go much further in stimulating demand. In the absence of these, land markets are likely to remain subdued, with selective opportunities emerging rather than a broad-based recovery.

Chart of the Month

Delays at the Building Safety Regulator remain a significant blocker to the delivery of high-rise, high-density housing. However, while challenges remain clearer guidance, better resourcing and a more proportionate approach to approvals have begun to reduce bottlenecks. Indeed, the latest data from the Build Safety Regulator shows legacy new build cases across the UK are down from 81 in November to 29 at the end of January, while decision times have fallen from 37 weeks last year to just 13 now.