For much of the past two years, the property finance market has focused on when interest rates might fall. However, the latest signals from the Bank of England suggest borrowers should not assume that further reductions are guaranteed.
At its June 2026 meeting, the Bank of England’s Monetary Policy Committee voted to keep Bank Rate unchanged at 3.75%. Significantly, two of the nine committee members voted to increase it to 4%.
UK inflation also remains above the Bank’s 2% target, meaning there is still a risk that rates could remain higher for longer—or potentially rise again if inflationary pressures continue. The next Bank Rate decision is scheduled for 30 July 2026.
For property investors and developers, this creates another period in which careful planning will be essential.
Do Not Base a Deal on Future Rate Cuts
It can be tempting to assess a property purchase or development on the assumption that borrowing costs will be lower by the time the loan completes or the project reaches its exit.
However, future movements in Bank Rate are never guaranteed. Although specialist property finance rates are influenced by wider market conditions, they are also determined by factors including:
- The strength and experience of the borrower.
- The type and location of the property.
- Loan-to-value and loan-to-cost levels.
- The proposed exit strategy.
- The lender’s appetite at the time of application.
- The complexity and duration of the project.
A transaction should therefore work based on realistic borrowing costs today, with any future rate reduction treated as an additional benefit rather than something the deal depends upon.
Stress-Test the Exit
The exit strategy is often the most important part of a bridging or development finance application.
Where the intended exit is a refinance, borrowers need to consider what the property will be worth at completion, what rental income it will produce and how much leverage an investment lender is likely to provide.
A development may be profitable on paper but still face a funding shortfall if the completed property cannot support the required refinance.
For example, a landlord intending to retain a completed development should not only calculate the expected gross development value. They should also assess:
- The anticipated monthly or annual rent.
- The interest coverage requirements of the proposed long-term lender.
- The maximum loan available at the expected valuation.
- Whether the refinance will repay the development facility in full.
- How an increase in long-term mortgage pricing would affect affordability.
Where the exit is a sale, developers should consider the possibility of a slower sales period, incentives being required or values coming in below the original appraisal.
Building additional time and financial contingency into the facility can provide valuable protection.
Should Borrowers Secure Terms Now?
There is no need for borrowers to panic, but those planning to purchase, refinance or begin a development should start the finance process as early as possible.
Obtaining indicative terms can help establish:
- How much a lender is likely to advance.
- The expected interest rate and fees.
- Whether interest will be retained, serviced or rolled up.
- The security and personal guarantees required.
- What information the lender will need before issuing a formal offer.
- Whether the proposed exit is considered credible.
However, borrowers should also understand how long the quoted terms remain valid and whether the lender is able to amend its pricing before completion.
The cheapest indicative quote is not always the best option. Certainty of funding, speed, flexibility and the lender’s ability to deal with complications can be equally important—particularly where a purchase deadline or auction completion is involved.
Consider the Full Cost of the Facility
Interest rates naturally receive the most attention, but they are only one part of the overall borrowing cost.
Borrowers should also consider arrangement fees, exit fees, legal costs, valuation fees, monitoring surveyor charges and whether interest is calculated on the full facility or only on funds actually drawn.
A development lender offering a lower headline rate may be more expensive overall if it charges interest on undrawn funds or applies additional fees to the gross development value.
Similarly, a slightly more expensive bridging facility may provide better value if it offers greater leverage, no exit fee, flexible early repayment or a more reliable route to completion.
Preparation Will Be Key
During an uncertain rate environment, lenders are likely to place even greater emphasis on the quality of the proposal.
Property investors and developers should ensure they have a clear funding request, realistic appraisal, evidence of experience, detailed schedule of works and credible primary and secondary exits.
Submitting a well-prepared application can improve the choice of lenders available and reduce the risk of delays or a change in terms during underwriting.
At Cator Wells, we arrange bridging, development, refurbishment, investment and revolving credit facilities for property investors and developers throughout the UK.
If you are considering a purchase, refinance or development project, speak to us early so we can assess the structure, stress-test the exit and identify the most appropriate funding options available.