Offer finance for building projects

The UK construction finance picture in 2025

After a demanding 2024, the construction market in Great Britain has edged back into positive territory. Official data points to small but sustained output growth in mid-2025 - roughly 0.3% to 0.6% on a three-month view - with monthly gains through early summer. The bright spots are private housing repair and maintenance and infrastructure, where activity has proved more resilient. That matters for borrowers because lenders follow the work. When pipelines stabilise, finance becomes more available and terms can improve for well-structured projects.

Borrowing costs have also eased. The Bank of England cut its base rate from 6% in 2024 to the 4% to 4.5% range in 2025. Even so, typical business loan pricing sits closer to 5% to 6% - higher than the pre-pandemic norm. Lenders are more selective, particularly on large or speculative schemes. Strong sponsors, clear cashflows and proven cost control get attention.

At the same time, alternative finance has grown. Mezzanine debt, private credit, joint ventures and developer equity are helping close funding gaps where banks hesitate. Blended structures tied to government-backed housing and infrastructure pipelines are increasingly common because they reduce risk and attract institutional capital. Green retrofit is a further engine of demand as projects align with net-zero goals and EPC improvements.

There are real risks to navigate. A significant number of UK construction firms remain under financial stress, increasing counterparty and delivery risk. Labour shortages and wage inflation continue to pressure budgets and schedules. Tender price inflation is easing but still positive - roughly 2% to 4% for buildings and 4% to 6% in infrastructure - which needs to be priced into contingencies and covenants.

The takeaway is straightforward: finance is available, but it must be tightly structured and tied to the strongest segments of activity, notably repair and maintenance, retrofit and de-risked housing and infrastructure streams.

Understanding APR is not just percentages - it is about what you actually repay over time.

Finance should fit the build, not the other way round.

Who benefits right now

If you are planning a renovation, extension or energy-efficiency retrofit, 2025 is relatively supportive. The outperforming repair and maintenance market suits smaller-ticket consumer and SME projects, often with quicker decisions and staged drawdowns. Developers with consented, phased schemes - particularly those aligned to social or affordable housing and regional infrastructure - can benefit from blended structures that reduce risk and improve viability. Larger, complex builds still face stricter scrutiny, so robust cost plans, contractor vetting and realistic timelines are essential.

Finance routes you can consider

1. Unsecured home improvement loans - fixed terms for renovations and extensions.

2. Secured homeowner loans - larger sums using property as security.

3. Development finance - staged drawdowns for new build or major refurb.

4. Bridging loans - short-term funding to start works or manage cashflow.

5. Mezzanine finance - subordinated capital to close funding gaps.

6. Private credit funds - flexible terms for mid-sized schemes.

7. Joint venture equity - share risk and upside with a capital partner.

8. Asset finance - plant, equipment and green technology funding.

9. Green retrofit loans - EPC-linked pricing for energy improvements.

10. Blended public-private finance - guarantees or forward-funding for social housing and infrastructure.

What it could cost and why it matters

Who typically qualifies

Eligibility depends on the route. Homeowners usually need stable income, clean credit and enough equity if securing against property. Lenders will assess affordability based on verified income, existing commitments and a realistic costed scope of works. For SME contractors and developers, expect close scrutiny of track record, cashflow, security and the quality of the professional team. Consented sites, fixed-price or target-cost contracts, and credible main contractors help your case, as does evidence of contingency to cover labour and tender inflation. Where projects tap social or affordable housing or infrastructure programmes, pre-lets, forward funding or guarantees can materially improve terms. In all cases, lenders in 2025 are cautious on large speculative builds and prefer phased schemes with exit visibility. Kandoo can help you compare options from multiple UK lenders and align product choice with your budget, schedule and risk profile.

Apply in clear steps

1. Define scope, budget, timeline and contingency clearly.

2. Gather plans, permissions, quotes and contractor credentials.

3. Check affordability and preferred security position.

4. Choose product type aligned to project risk.

5. Submit application with documents and cost breakdown.

6. Lender due diligence and valuation take place.

7. Receive offer with covenants and drawdown schedule.

8. Complete legal checks and begin staged drawdowns.

Upsides and trade offs

Check these points before you sign

Push your budget through realistic stress tests. Allow for 2% to 4% tender inflation for buildings and higher for infrastructure. Build a contingency for labour shortages and wage pressure, particularly on specialist sustainable works. Check the financial strength of your contractor and key subcontractors because sector stress remains elevated. Understand every covenant, from information undertakings to step-in rights and retentions, and match the drawdown timetable to your programme to avoid idle debt. If your project aligns with social or affordable housing pipelines, explore guarantees or forward purchase agreements that can materially improve pricing and reduce risk. Finally, test your exit - sale, refinance or refinance-to-hold - against less optimistic market conditions.

Alternatives worth exploring

1. Phased scope - deliver in stages to match cashflow.

2. Value engineering - redesign for the same outcomes at lower cost.

3. Forward funding with an institutional buyer.

4. Grants or regional funds for retrofit and decarbonisation.

5. Supplier credit and retention-linked payment schedules.

6. Community or co-op finance for eligible schemes.

Common questions, clear answers

Q: Are rates really lower in 2025? A: The base rate has fallen to roughly 4% to 4.5%. Business loan rates are still elevated around 5% to 6%, but affordability has improved for well-structured projects.

Q: Which projects get funded fastest? A: Smaller repair and maintenance, retrofit and consented refurbishments with fixed-price contracts, strong contractors and clear cashflows typically move quickly.

Q: How much contingency should I carry? A: Many lenders expect at least 5% to 10% base contingency, plus allowances for labour pressure and modest tender inflation, depending on complexity and sector.

Q: What if my contractor fails mid-project? A: Lenders may require performance bonds, step-in rights and retention to protect progress. Choose financially robust contractors and keep substitutes identified.

Q: Can I get better terms for green works? A: Yes. EPC-linked loans and green-labelled products can price keener where carbon reductions and efficiency gains are independently verified.

Q: How do public programmes help? A: Government-backed commitments to social and affordable housing and infrastructure can support forward funding, guarantees or blended finance, reducing risk and drawing in institutional capital.

How Kandoo helps you move first

Kandoo is a UK-based retail finance broker that connects homeowners, SMEs and developers with lenders that understand construction. We match your project with flexible products - from unsecured home improvement loans to staged development finance and green retrofit options - and help you compare rates, fees and conditions so you can proceed with confidence.

Important information

This guide is for general information only and is not personal advice. Credit is subject to status, affordability and terms from participating UK lenders. Always consider independent financial and legal advice before committing.

• Next steps: request quotes from at least three contractors, prepare a realistic programme, and speak with Kandoo to compare finance options side by side.