According to Knight Frank’s latest Residential Development Land Index, developers are increasingly using deferred payment structures that reduce upfront capital commitments when acquiring land as a way of managing risk at a time when viability remains under pressure.
The structures, which allow a greater share of the land purchase price to be paid as homes are built and sold, are becoming more prevalent as developers adapt to a market shaped by elevated borrowing costs, higher build costs, weaker sales rates and ongoing planning delays.
Charlie Hart, head of development land at Knight Frank, said: “Deferred payment structures have been around for some time, but they are becoming more common as developers look for ways to manage rising construction and delivery risks.
“While it’s not the most ideal solution, they can provide much-needed flexibility around capital commitments and help transactions progress that might otherwise stall. However, their growing use reflects the pressure facing the sector.
“Developers are doing everything they can to get deals over the line, but viability remains a major challenge. As a result, many schemes are being put on hold or exploring alternative uses, while the industry waits for conditions to improve.”
According to Knight Frank’s latest Land Index & Developer Survey, residential development land values continued to soften during Q2 as higher borrowing costs, elevated build costs and weaker sales rates weighed on scheme viability.
Greenfield land values fell 5.5 per cent during the quarter, taking the annual decline to 3%. Prime Central London (PCL) land values declined one per cent over the quarter, leaving values 3% lower year-on-year. Urban brownfield land values fell 2.5 per cent during the quarter, extending annual declines to five per cent.
Oliver Knight, head of residential development research at Knight Frank, said: “While there is still appetite for land acquisition, developers are having to adapt to current market conditions and are becoming more selective.
“Rising oil and gas prices during the second quarter increased inflation expectations and created greater uncertainty around the outlook for borrowing costs. That has made it more difficult for developers to underwrite projects with confidence, particularly larger schemes with longer delivery timelines.
“Against this backdrop, there is a strong focus on fully consented, shovel-ready sites that can be brought forward quickly, although they remain in short supply.”
The firm’s quarterly survey of more than 35 small and volume housebuilders reveal that planning delays remain the most frequently cited challenge, identified by 64 per cent of respondents, followed by buyer sentiment (52 per cent) and the short-term outlook for the UK economy (48 per cent).
Urban brownfield sites continue to face the greatest viability pressures. Elevated build costs, affordable housing requirements, weak off-plan sales rates and the risks associated with Gateway 2 continue to restrict the delivery of many higher-density schemes.
Hart said: “While planning reforms and improvements to the Gateway 2 process are helping to ease some of the sector’s challenges, approvals alone do not build homes. The real test is delivery, and construction activity remains weak.
“If we are to get anywhere near the target of 1.5 million new homes, getting spades in the ground must now be the priority. Supply-side pressures and subdued buyer demand continue to hold back delivery.
“The sector needs positive intervention from government. With the right support, developers will build. Without it, the gap between planning consents and completed homes will only continue to widen, and frustration across the industry will continue to grow.”
The firms’ findings indicate that development activity is likely to remain subdued in the near term.
Nearly eight in ten developers reported falling site visits and reservations during Q2, while almost six in ten expect reservation volumes to underperform in 2026 compared with a year earlier. Around 60 per cent expect land values to soften further, with the remainder anticipating broadly stable market conditions.
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