The UK Construction PMI reading for April 2026. Firmly in contraction territory and the weakest reading since November 2025. House building, at 38.2, was the second weakest segment, with purchasing costs rising at their fastest rate since June 2022, driven by fuel surcharges and raw material price increases linked to the Middle East conflict.

House prices soften as buyers wait and see

Halifax’s latest House Price Index, published on 8 May, points to near-term stability against a backdrop of slowing annual growth. The index recorded a 0.1% fall in house prices in April, following a 0.5% decline in March. Average property values now stand at £299,313, down marginally from £299,609 in March, while annual growth slowed to 0.4% from 0.8%.

The market appears to be slowing rather than correcting sharply. Affordability constraints, elevated borrowing costs and weaker confidence continue to weigh on transaction activity as households reassess the timing of major financial commitments.

Regional divergence remains a defining feature of the market. Northern Ireland recorded the strongest annual growth at 7.6%, continuing the trend of stronger performance outside parts of southern England where affordability pressures remain more acute. Halifax also noted that most existing homeowners remain on fixed-rate mortgage products and are therefore partially insulated from short-term interest rate volatility. That insulation has helped limit forced selling and contributed to broader market resilience despite softer demand conditions.

Conditions remain more subdued for prospective entrants to the market. The average price paid by first-time buyers fell slightly to £238,908, its lowest level of the year to date, reflecting affordability pressures and a more hesitant lending environment.

Recent increases in energy prices have also contributed to firmer inflation expectations, prompting markets to reassess the likely path of interest rates. That repricing has filtered through into mortgage pricing, reinforcing caution among households considering property purchases or refinancing decisions.

The alternative lenders take over

Appetite for UK real estate debt has strengthened, albeit selectively and with a clear bias toward operationally resilient sectors. The latest Bayes Business School CRE lending survey, published on 7 May, found that new lending for UK commercial real estate rose 29% in 2025 to £52.7 billion, the highest level in a decade. Activity was driven primarily by non-bank lenders, whose new lending increased by 51%. Debt funds were the largest gainers, increasing their market share from 12% to 28%. Alternative lenders, including insurance companies, now hold 45% of outstanding CRE loans, while UK banks’ share has fallen to 36%.

Around 60% of new lending involved refinancing rather than new transactions, reflecting subdued development activity. With transaction volumes relatively low, lenders competed on price to protect market share. Appetite was strongest for logistics, residential and student housing, with most lenders targeting loan sizes above £20 million.

Investors back existing stock

That preference for operationally resilient assets has also been reflected in equity market activity. UK investment in purpose-built student accommodation (PBSA) reached £2.1 billion in Q1 2026, according to Knight Frank, marking the sector’s strongest start to a calendar year in more than a decade. Twenty transactions were completed during the quarter, though activity remained concentrated in a small number of large deals rather than broad-based market expansion. Five of the 20 transactions were priced above £150 million. Investor preference remained firmly skewed toward existing income-generating assets rather than development sites or forward-funding commitments, with 65% of transactions falling into this category.

Housebuilders hold their nerve

Housebuilder updates suggest a more mixed picture for development activity. Taylor Wimpey reported that order book value fell to £2.229 billion from £2.335 billion a year earlier, while pricing within the order book declined by 1%. Land approvals also slowed, with around 1,000 plots approved year to date versus 1,700 at the same point last year. Persimmon’s headline figures were more positive, with private forward sales up 7% and average selling prices around 5% ahead of last year. However, incentives remain elevated at 4–5% on average, supporting volumes while modestly diluting pricing strength.

Capital is being deployed selectively rather than broadly. Investors and lenders continue to favour sectors perceived as structurally undersupplied or operationally defensive, while development activity remains constrained by cost pressures, financing conditions and geopolitical uncertainty.

Why Capital Is Favouring Operational Assets Over Development Risk

Capital is being deployed in the UK real estate market, but selectively. Recent lending and investment data suggest investors are increasingly favouring existing income-generating assets over development exposure. In this edition of The Long View, we explore why capital is behaving this way, and what it may mean for the UK market over the medium term.

Thursday’s publication of the UK construction PMI pointed to a challenging development environment, with activity remaining in contraction alongside rising fuel and raw material costs. Geopolitical instability in the Middle East continues to add uncertainty to supply chains and input pricing, further complicating development economics. Recent housebuilder updates also point to greater caution around future expansion. Taylor Wimpey reported lower land approvals year to date, while Persimmon’s more optimistic trading update was nevertheless accompanied by a similarly disciplined approach to land acquisition.

For existing assets, the picture is markedly different. Recent data suggests non-bank lenders have increased their share of the UK lending market, albeit with an emphasis on refinancing rather than lending against new projects. Equity market activity points in the same direction, with investors continuing to favour operationally resilient assets over development exposure.

The reasoning is clear. Development activity is harder to justify at present: purchasing cost inflation, higher financing costs and geopolitical uncertainty continue to compress margins. Buying or lending against existing cash-generating assets presents a lower risk than underwriting new developments. Both lenders and equity investors are therefore responding rationally to current market conditions. The question is what the potential impact of this trend could be if it continues.

In the short term, a narrower supply pipeline would place upward pressure on rents in structurally undersupplied sectors. This effect is likely to be felt more acutely in commercial markets than in residential, where affordability constraints and the legal and regulatory environment are likely to limit the extent of rental increases. For commercial assets, this could create a reinforcing cycle, with rising rents further strengthening investor preference for existing stock.

Much of what is needed to shift the development picture remains outside the market’s control. Cost inflation needs to ease. Stabilising fuel surcharges and raw material prices would improve development margins. The interest rate trajectory also needs to become clearer. Greater certainty around future rate cuts would reduce financing costs and make development activity easier to underwrite. Both are partly functions of continuing uncertainty in the Middle East, where geopolitical resolution would reduce supply chain disruption and pricing volatility. Reforms to planning law may help, but only if improved confidence leads planning permissions to convert into actual development activity.

The picture is not uniform. Official housing starts data showed a recovery in Q4 2025, though this may partly reflect a clearing of the application backlog following BSR processing improvements rather than a genuine improvement in developer sentiment. For now, caution remains the defining feature of a development market under pressure, with investors continuing to favour the relative certainty of existing income-generating assets.

The end of no-fault eviction

The Renters’ Rights Act 2025 came into force on 1 May 2026, marking one of the most consequential interventions in England’s private rented sector in a generation. Assured shorthold tenancies and Section 21 evictions have now been abolished, ending landlords’ long-standing ability to recover possession on a no-fault basis.

The reforms materially rebalance the legal relationship between landlord and tenant. Landlords seeking possession must now rely on specified statutory grounds, increasing procedural friction while strengthening security of tenure for tenants. The changes are expected to alter behavioural incentives across the market, particularly for smaller landlords assessing risk, liquidity and exit options.

The legislation also reshapes the economics of rent adjustment. From 1 May 2026, landlords can no longer rely on existing contractual rent review clauses for future increases and must instead use the statutory section 13 process. That process introduces formal notice requirements and expands tenants’ ability to challenge proposed increases before the First-tier Tribunal. While intended to improve transparency and constrain excessive rent inflation, the reforms are also likely to increase administrative burdens and encourage more cautious pricing strategies at the outset of tenancies.

Gateway 2: progress, but pressure remains

The Building Safety Regulator published its latest Gateway 2 approval data, covering the 12 weeks to 1 May 2026. Gateway 2 is the mandatory pre-construction approval stage for higher-risk residential buildings and remains a significant constraint within the post-Grenfell building safety regime.

Headline figures point to operational improvement. The overall approval rate rose to 71%, with 323 decisions issued during the period. The Innovation Unit, which oversees the most complex new-build applications, recorded an approval rate of 73%, up sharply from 33% in February. Developers are likely to view the improvement as evidence that regulatory throughput is beginning to stabilise after a prolonged period of concern over delays.

However, pressure on the system remains. New applications continue to outpace completed decisions, meaning the live caseload is still expanding despite the higher approval rate. Median approval time across all categories remains elevated at 35 weeks, continuing to weigh on delivery timelines and project financing assumptions. Performance also remains uneven geographically. London remediation approvals stand at 63%, below the regulator’s own 65% target, reinforcing concerns that the capital’s remediation pipeline continues to face structural bottlenecks despite incremental operational gains.

Three things worth knowing

Vistry Group AGM (13 May): Vistry’s AGM is likely to be accompanied by a trading update offering further insight into the affordable housing pipeline and the group’s partnerships model. Commentary on margin trajectory and forward sales will be closely watched.

New Towns consultation (closes 18 May): The government’s proposed seven New Town locations, including sites in Enfield, Leeds and Manchester, are subject to a live consultation closing on 18 May. Developers and institutional investors with interests in those locations should note the deadline.

Tritax Big Box REIT AGM (7 May): Tritax is awaiting a planning decision on its Manor Farm site near Heathrow, where it is seeking to repurpose logistics land for data centre use. A Secretary of State decision is expected on or before 9 June. Whether other logistics landowners follow a similar trajectory could have significant implications for how logistics real estate is developed and valued.

The Early Viewer is for informational purposes only and should not be relied upon as investment, financial or legal advice.