Where costs stand now
After the unprecedented cost inflation of 2021–2024 — driven by post-COVID supply chain disruption, energy price spikes, and labour shortages — the picture in 2026 is more stable. Annual construction cost inflation has moderated to 3–5% (BCIS), compared to peaks of 10–15% during 2022.
However, costs have not fallen back. The cumulative increase of 15–25% since 2021 is now baked into the market. Developers need to budget based on current reality, not 2021 benchmarks.
Current build cost benchmarks (mid-2026)
- New-build houses (standard spec): £170–£240/sqft (£1,830–£2,580/sqm)
- New-build flats (standard spec): £200–£280/sqft (£2,150–£3,010/sqm)
- New-build flats (premium/London): £280–£420+/sqft (£3,010–£4,520/sqm)
- Office-to-residential conversion: £90–£170/sqft (£970–£1,830/sqm)
- Heavy refurbishment: £130–£220/sqft (£1,400–£2,370/sqm)
- Barn conversion: £110–£230/sqft (£1,180–£2,480/sqm)
What's driving current costs
Labour: still tight
The UK construction sector continues to face labour shortages. An ageing workforce, reduced EU migration, and competition from infrastructure projects (HS2, energy) are keeping wages elevated. Skilled trades (bricklayers, electricians, plumbers) remain particularly expensive and hard to secure.
Materials: stabilised
After extreme volatility in 2021–2023 (timber +80%, steel +50%, concrete products +30%), material prices have largely stabilised. Some categories have even fallen slightly from their peaks. Energy-intensive products (bricks, glass, cement) remain sensitive to energy prices but the extreme spikes are over.
Regulation: adding cost
New regulatory requirements are adding 5–10% to build costs compared to pre-2024 levels: Future Homes Standard (better insulation, heat pumps), Biodiversity Net Gain (habitat creation), Building Safety Act (Gateway 2 process for taller buildings), and EPC minimum standards.
Impact on development finance
Lenders benchmark your stated build costs against BCIS data and their own recent deal experience. If your costs are significantly below current benchmarks, they'll challenge them — and rightly so, because undercosted projects are the leading cause of development finance defaults.
- Use current tender prices: Don't rely on benchmarks from 12+ months ago. Get fresh contractor quotes.
- Include realistic contingency: 7.5–10% minimum. For complex schemes or refurbishments, 10–15%.
- Sensitivity test: Show your lender what happens at 10% and 20% cost overruns. If the deal can't survive a 10% overrun, the margins may be too thin.
Assesr's AI credit papers automatically benchmark your stated costs against current market data and include sensitivity analysis — giving lenders confidence that the numbers are realistic.