A residential development becomes risky when the value assumed in the appraisal is no longer supported by enough buyers who can exchange and complete at that price. The difficulty does not usually begin with an obvious collapse in demand. It develops through slower reservations, longer mortgage processing times, increased incentives, repeated down-valuations (something we have seen a lot of in recent cases) and a gradual extension of the sales period. A scheme that appeared profitable when the senior development facility was agreed can therefore become materially less viable even when the completed units remain attractive and technically saleable.
This is now a significant issue in parts of London’s new-build market. Developers are completing schemes into a market where first-time buyers face restricted affordability, overseas purchasers are less active, buy-to-let investors are more selective and existing landlords are competing with developers by selling comparable flats. The result is not that every new London home is worthless or permanently unsaleable. It is that the number of private purchasers willing and able to buy at the developer’s required price is insufficient to clear larger schemes within the expected period.
Recent reporting suggests that 34% of London new homes intended for private sale were instead sold to investment funds or housing associations last year, up from 25% in the previous year. These transactions provide developers with an exit, but the purchaser is normally acquiring multiple units and expects a discount for committing capital in bulk. Housing associations may also need the pricing to work alongside grant funding, affordable housing requirements and target rental levels, while institutional investors will assess the acquisition against long-term net rental income rather than individual open-market values.
This creates a direct commercial problem for property developers because development finance is structured around timing as well as headline value. A lender may be comfortable advancing against a scheme with a projected gross development value (“GDV”) of £20 million, expected build costs of £12 million and an 18-month programme, but that position changes if the completed value falls to £18 million and the sales period extends by another year. Interest continues to accrue, professional fees remain payable, service charges and security costs begin after completion, and the developer’s equity remains trapped until the senior lender has been repaid.
London’s risk is concentrated in the exit
The current risk in London is not evenly spread across every type of property. Established family houses in supply-constrained neighbourhoods are not exposed to the same market as large blocks of similar one and two bedroom apartments. A small refurbishment completed for a local owner-occupier market can also behave differently from a 150-unit scheme dependent on overseas investors, first-time buyers and buy-to-let purchasers arriving at the same time.
The greatest exposure sits with developments that require a high volume of individual sales at a new-build premium. The developer may have achieved the planning consent, controlled build costs and completed the work correctly, but the transaction still fails to produce the expected return if purchasers cannot obtain mortgages at the assumed values. A valuer does not need to conclude that the development is fundamentally defective to reduce the price. Evidence of developer incentives, bulk disposals, competing landlord sales and weak recent transactions can all reduce the value used by lenders.
This is crucial because the developer’s profit is the final part of the capital stack to be recovered. The senior lender is repaid first, followed by any mezzanine lender or secondary funder, before the developer receives its residual equity and profit. A relatively modest reduction in the GDV can therefore remove a disproportionate amount of the developer’s return.
Consider a scheme with a GDV of £12 million, total construction and professional costs of £8 million, finance and sales costs of £1 million and a land cost of £1.2 million. The projected profit is £1.8 million before tax. If private-sale values fall by 8%, the GDV reduces by £960,000. If the sales period also extends and creates another £300,000 of interest and holding costs, the profit falls to approximately £540,000. A 10% fall in sale values combined with additional finance costs could remove the profit entirely.
The developer may still be able to repay the senior lender, but that is not the same as completing a commercially successful project. The business may have tied up several years of management time and substantial equity for little or no return, while also losing the capital required to secure the next site.
The financing friction appears before completion
Development lenders are not waiting until the final unit is completed before reacting to weaker London sales evidence. The impact is increasingly visible at the initial credit stage, during valuation and when borrowers request extensions or increased facilities.
A lender assessing a London apartment scheme may reduce the value attributed to the completed units, apply a longer assumed sales period or require more equity at the outset. It may also limit the facility by reference to both loan-to-cost and loan-to-gross-development-value calculations, using whichever produces the lower advance. Where a scheme is heavily dependent on private sales, the lender may require a minimum number of pre-sales, stronger evidence of buyer deposits or a fully costed alternative exit.
The distinction between a valuation and a realisable value is particularly important. An individual flat may have an open-market value of £500,000 when sold with normal marketing over a reasonable period. That does not mean a block of 80 similar flats can be converted into £40 million of cash within six months. A lender will consider the rate at which the units can realistically be absorbed, the incentives required to secure buyers and the discount that might apply if the developer has to sell several units together.
Property developers often experience the effect through loan conditions rather than an outright rejection. The lender may ask for a higher contingency, insist that professional fees are funded from equity, reduce the day-one land advance or retain part of the facility until sales progress is demonstrated. Personal guarantees may increase, cost-overrun guarantees may be tightened and the lender may seek stronger control over the sales account.
The same issue affects refinance. A developer expecting to move from a development facility onto a short-term sales bridge may find that the exit lender uses a lower value and a more conservative loan-to-value ratio. The refinance then repays less of the original facility than expected, requiring the developer to inject additional capital precisely when its cash is tied up in unsold units.
This can create pressure throughout the supply chain. Contractors wait longer for retention payments, agents negotiate reduced fees to secure bulk transactions, consultants remain unpaid pending completion and connected businesses are asked to provide temporary working capital. A property development problem can therefore become a wider liquidity problem for otherwise viable SMEs in the wider property development-related industries.
Regional markets are not facing the same conditions
The wider UK market is not following London in a uniform way. Recent national data showed UK house prices rising by 3.8% over the year while prices in London fell. Mortgage approvals also increased year on year, indicating that transaction demand has not disappeared across the country.
The strongest price growth was recorded in areas including the North East, the North West and Northern Ireland, although every regional market still contains stronger and weaker submarkets. The relevant conclusion is not that any property outside London is automatically safe. It is that London is no longer providing the clear combination of liquidity, price appreciation and international demand that previously justified accepting lower yields and higher entry values.
Manchester, Leeds, Liverpool, Sheffield, Birmingham and Newcastle can offer lower site costs, lower completed-unit prices and stronger rental yields, but the commercial case depends on the exact local market. A development close to established employment, transport and amenities may attract owner-occupiers and tenants at price points supported by local incomes. A poorly located city-centre block with excessive investor stock can still be vulnerable, even where the regional economy is performing well.
For property developers, the attraction of the regions is partly mathematical. A three bedroom house selling for £325,000 to a local family may have a broader pool of mortgageable buyers than a £700,000 London apartment. The lower price reduces the required deposit and mortgage balance, while the product may also face less competition from existing landlords selling identical units within the same block.
Regional schemes can also be structured in smaller phases. A developer building 24 houses in two stages may be able to adjust the second phase after testing actual demand in the first. A large apartment block normally requires substantial upfront expenditure before meaningful sales receipts are generated. Phased regional housing can therefore reduce both construction exposure and the amount of capital tied up at any one time.
Finspire identified the regional case before the current policy shift
The stronger regional investment case did not begin with the announcement of No 10 North. In December 2025, Finspire Finance identified Sheffield as a city where businesses could operate with a lower fixed-cost base while retaining access to skilled employees, universities, advanced manufacturing expertise and an established commercial network.
Our analysis focused on Sheffield’s buildability rather than making a broad claim that every northern property market would outperform London. Businesses that can secure premises, recruit staff and access funding without carrying London-level overheads have more capacity to invest, employ and remain in the region. Over time, that supports demand for housing, industrial units, offices and local services.
The latest housing data and the proposed transfer of government operations to Manchester now reinforce the wider regional thesis. London’s development model is becoming harder to sustain where high land values, expensive construction and restricted mortgage affordability leave schemes dependent on premium selling prices. Selected northern cities begin from a lower cost base and have more scope for employment, infrastructure and regeneration investment to translate into commercially viable development.
Sheffield remains relevant within that analysis because its economic case is based on established institutions rather than a single government announcement. Its universities, engineering base, advanced manufacturing sector and comparatively affordable operating environment were already supporting business activity before the current political focus on decentralisation. No 10 North adds momentum to the regional argument, but it does not create the underlying fundamentals.
Our December 2025 analysis, The Business Case for Sheffield in 2025, examined those fundamentals in detail. The present shift does not prove that every regional development will succeed, but it supports the conclusion that developers and investors should assess northern cities on their own commercial merits rather than treating London as the automatic lower-risk, higher-yield option.
No 10 North strengthens the direction of travel
Andy Burnham’s proposal to establish extended Downing Street operations in Manchester does not by itself transform the regional property market. The immediate effect depends on how many staff move, what functions are transferred, whether budgets follow the political announcement and how permanent the arrangement becomes.
The wider policy direction is more relevant than the office address. Burnham has linked the proposal to greater devolution, regional infrastructure, public-private investment, town-centre regeneration, technical education, reindustrialisation and a large council housebuilding programme. If those policies are funded and implemented, they could increase the number of stable jobs and public-sector functions located outside London.
Government activity affects property markets through employment, procurement and confidence. A meaningful transfer of decision-making authority can attract consultants, legal firms, technology providers, construction businesses and professional services companies that want to operate near the relevant institutions. These firms employ staff, lease offices, purchase local services and create demand for housing within commuting distance.
The process is cumulative rather than immediate. A government office employing several hundred people does not materially alter a regional housing market on its own. The effect becomes more significant when it sits alongside transport investment, universities, financial services, digital businesses, established employers and a functioning planning pipeline.
Manchester already has many of those components. It has a large professional-services sector, major transport links, universities, media and technology activity, substantial city-centre development and a recognised devolved authority. No 10 North would therefore reinforce an existing economic centre rather than attempting to create one from nothing.
The potential benefits are not limited to Manchester. Burnham has described the proposal as a mechanism for transferring power into the Midlands, South West, East of England, North East, Yorkshire and the Humber as well as the North West. The commercial question is whether this becomes a genuine redistribution of budgets and authority or remains a symbolic political programme with limited operational impact.
Developers and investors should not price unconfirmed policy benefits into land purchases. However, they should recognise that the direction of travel is increasingly supportive of regional cities with established employment bases and devolved institutions.
What the change means for developers
A property developer considering London and regional opportunities should now compare the schemes on the basis of recoverable cash rather than prestige, headline GDV or assumed capital appreciation.
The first comparison is the buyer pool. A scheme intended for owner-occupiers should be tested against local salaries, deposits and mortgage affordability. It is not sufficient to rely on the asking prices of nearby new-build properties if those units remain unsold or were purchased using incentives that are not reflected in the recorded price.
The second comparison is the sales period. A London development may produce a higher nominal margin, but a regional scheme can generate a better annualised return if it completes and sells more quickly. A £1 million profit earned over four years is less attractive than a £700,000 profit earned over two years, particularly when the shorter scheme releases equity for reuse.
The third comparison is the downside exit. Every development appraisal should show what happens if private sales are slower than expected. A regional housing scheme may be capable of bulk sale to a registered provider, local housing company or private rented-sector operator, but that route must be assessed before the facility is drawn. The investor’s achievable rent, operating costs and required yield determine the bulk value, which may be materially below the total of individual selling prices.
The fourth comparison is construction liquidity. Regional schemes with lower land values may require less equity and produce a lower absolute interest bill. They can still experience cost overruns, but the funding requirement may be more manageable for the balance sheet. A London scheme can absorb a large proportion of the developer’s available capital before construction begins, leaving little room to deal with delays, additional planning conditions or valuation changes.
The developer should also consider the behaviour of the senior lender. A higher GDV does not necessarily generate a larger or more flexible facility. If the lender considers the London exit difficult, it may reduce leverage, require more pre-sales and impose stronger covenants. A well-located regional scheme with clear local demand can be easier to finance despite having a lower total value.
What the change means for investors and landlords
Regional property is often presented as a simple yield alternative to London, but gross yield alone does not establish investment quality. The investor needs to deduct service charges, management fees, maintenance, voids, insurance, ground rent where applicable, compliance costs and finance. A nominal gross yield of 7% can become a weak net return if the block has high service charges and limited tenant demand.
The strongest regional investment cases usually combine an affordable purchase price with established employment and constrained competing supply. Properties dependent entirely on future regeneration are more speculative because the investor is paying today for jobs, infrastructure and amenities that may not arrive on time.
The No 10 North proposal improves the strategic case for Manchester, but investors should still analyse the individual asset. A flat within walking distance of a major employment area may have strong tenant demand, while a superficially similar property in an oversupplied fringe location may face repeated voids and weak resale demand.
London retains advantages for investors who prioritise liquidity, international demand and long-term scarcity, but the entry price needs to reflect current conditions. An investor purchasing a London new-build flat at full developer asking price, with a low net yield and high service charges, is accepting substantial reliance on future capital growth. A regional asset purchased at a sustainable income yield can produce a return without requiring prices to rise.
The financing calculation is also different. A £300,000 regional property at 70% loan-to-value requires a £90,000 deposit before costs. A £700,000 London property at the same leverage requires £210,000. The investor can therefore diversify across more than one regional asset or retain liquidity for refurbishment, voids and tax liabilities rather than concentrating capital into a single low-yielding unit.
The council housing programme creates both demand and competition
Burnham’s proposed council housebuilding programme is relevant to private developers because it could create a substantial purchaser and commissioning market for construction businesses. Local authorities and registered providers may acquire completed units, forward-fund schemes, enter joint ventures or appoint regional contractors to develop public land.
This can reduce sales risk where the transaction is structured before construction. A developer with an agreement to sell 30 completed homes to a housing association has greater visibility over the exit than one relying on 30 separate retail purchasers. The price will normally be lower than the aggregate open-market value, but the developer may benefit from reduced sales costs, fewer incentives, lower interest exposure and faster capital recycling.
The transaction must still be viable at the contracted price. Affordable housing purchasers assess rent levels, grant availability, specification, management costs and long-term maintenance. The developer cannot assume that public-sector demand will absorb units at the original private-sale valuation.
A large public programme may also increase pressure on land, labour and materials. Property developers could face more competition for suitable sites and subcontractors, while contractors working on public projects may have less capacity for private schemes. The net benefit will depend on procurement design, payment practices and whether smaller regional firms can participate without carrying excessive tendering and compliance costs.
A practical development comparison
Assume a property developer has £1.5 million of available equity and is choosing between a small London apartment scheme and a regional housing project.
The London opportunity consists of ten flats with a projected GDV of £6 million. Land, construction, professional fees, finance and sales costs total £5 million, producing an expected profit of £1 million. The lender requires £1.4 million of developer equity because of concerns about the sales market, and the appraisal assumes all units sell within nine months of practical completion.
If values fall by 5%, the GDV reduces by £300,000. If the sales period extends by nine months, additional interest, service charges, council tax, security and marketing could add another £180,000. The projected profit falls to £520,000, while almost all the developer’s equity remains committed until the later units complete.
The regional opportunity consists of 18 houses with a GDV of £5.4 million and total costs of £4.4 million, also producing a projected £1 million profit. The site can be developed in two phases, and the lender requires £900,000 of equity. The houses are priced around £300,000 and targeted at local owner-occupiers.
If values fall by 5%, the gross development value reduces by £270,000. However, the phased build allows the developer to delay or amend the second phase if demand weakens. The lower debt balance produces a smaller interest cost, and the remaining £600,000 of equity provides liquidity for overruns or another project.
The regional scheme is not automatically the better transaction. Planning risk, contractor availability, local sales evidence and infrastructure obligations may alter the result. It nevertheless provides more ways to manage exposure because the entry cost is lower, the buyer pool is less dependent on high household incomes and the project can be phased.
The commercial conclusion
London remains the UK’s largest and most liquid property market, but scale and historical performance do not remove current development risk. The main concern is the gap between individual open-market valuations and the price or time required to sell an entire new-build scheme. Where the developer depends on rapid private sales at premium values, that gap can remove profit and trap equity for an extended period.
Regional markets now offer a stronger relative case where property values are supported by local incomes, employment is diversified and supply is controlled. The improvement in national mortgage approvals and house prices outside London suggests that buyer demand remains active, while falling London values indicate that the capital is experiencing a specific adjustment rather than participating fully in the wider market.
Burnham’s No 10 North proposal adds to the strategic argument for Manchester and other established regional centres, but it should be treated as a direction of policy rather than a completed economic transfer. The material benefit will depend on permanent jobs, devolved budgets, infrastructure spending and the ability of local authorities to turn policy into deliverable projects.
For developers, the practical response is not to abandon London or buy indiscriminately in the North. It is to apply more conservative London exit values, assess the true depth of the buyer pool, model longer sales periods and secure alternative exits before construction. Regional schemes should be tested with the same discipline, including realistic rents, local sales evidence, phased funding and the effect of competing supply.
The market is increasingly rewarding developments that can be completed, sold and refinanced without relying on aggressive assumptions. In the present environment, selected regional cities may provide a better balance of entry price, finance cost, buyer affordability and capital recycling than London new-build apartments. That is a commercial shift with direct relevance to developers, landlords, contractors and advisers, regardless of whether No 10 North ultimately becomes a large government operation or a smaller symbolic presence.
