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New build house prices outpace construction costs as demand grows

UK landlords and developers are being handed a clear-cut opportunity: the cost of new-build homes is rapidly outpacing the rise in labour and material expenses, making it increasingly profitable to construct or redevelop property. According to fresh analysis from West One Loans, new-build prices have rocketed 42.0% in the last three years—far exceeding the 8.5% rise in materials and 17.8% in labour over the same period.

This widening gap has made specialist finance—particularly bridging and development loans—more attractive than ever for landlords looking to generate equity quickly or diversify portfolios through ground-up or refurbishment projects.

“The new-build sector remains a very profitable endeavour for those who can negotiate the challenges it poses,” said Thomas Cantor, Co-Head of Short-Term Finance at West One Loans.

Bumper year for new-build profits
The latest numbers lay bare just how rewarding development has become. In 2024 alone, new-build property values soared by 28.8%, while material costs rose by just 1.3% and labour ticked up 4.8%. Compare that with a modest 1.2% increase in materials between 2022 and 2024, and the scale of the opportunity becomes crystal clear.

Cantor acknowledged the difficulties that housebuilders face—including higher interest rates, inflationary pressures and contractor shortages—but argued that the overall profit margin still overwhelmingly favours those willing to invest.

“We’ve seen the value of new-build homes climb substantially more versus the cost increases… No surprise then, that we’ve seen a greater reliance from the nation’s housebuilders with respect to specialist finance products,” he explained.

With strong market demand and values holding firm, developers and landlord-investors are leaning more heavily on tailored funding—like bridging finance—to offset short-term cashflow constraints and drive projects through to completion.

Bridging and development finance fuels momentum
Bridging loans are increasingly being used to plug funding gaps in the development process—whether for acquisition, refurbishment or site preparation—before moving onto long-term buy-to-let mortgages or outright sale. For landlords, this offers the best of both worlds: access to quick capital and the flexibility to exit at the right moment, when values peak.

Cantor says this agility is a major advantage in today’s climate: “Bridging, in particular, [is] proving a crucial tool that allows [builders and investors] to negotiate any unforeseen cost increases and push on with their development plans.”

With market conditions beginning to shift—particularly around rate expectations and planning bottlenecks—those armed with finance solutions and a readiness to act quickly may well steal a march on slower-moving competitors.

Year of the landlord-developer?
With traditional buy-to-let under mounting pressure from tax reform and regulatory change, landlords are increasingly looking for alternative routes to profitability. Ground-up builds, conversions, and refurb-to-let projects backed by flexible finance are gaining traction—and with good reason.

The question now is whether more landlords will seize the momentum before the cost gap closes or policy shifts again. Is it time to view development not just as a niche strategy, but a core part of the modern landlord’s toolkit?

 

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