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Date: 20 May 2025

Author: Lee Merrifield

In today’s property industry, simply laying solid foundations is no longer enough. How can developers work smarter to protect profit margins in an increasingly challenging market?

Having worked in the finance industry for nearly 40 years, I’ve witnessed the highs and lows of property development, and how that can affect regional developers. Recently, there have been a whole host of reasons why profit margins are being squeezed, from rocketing build costs to a dip in property prices and buyer appetites.

This article considers ways that developers can protect their profit in property and ensure they continue building homes in the UK for years to come.

Making the right buying decisions

Understanding how to maximise profit in property development starts with making strategic purchasing decisions. One strategy that savvy developers use is securing options on land before obtaining planning permission—allowing developers to control a site without fully committing large sums of money upfront.

This not only minimises upfront expenses, but also enhances flexibility and bargaining power, whilst enabling the developer to get the planning consent that best suits their business. The result is often the delivery of an ‘early’ profit via an enhanced land value once the consent lands, which provides further risk mitigation when moving on to the build phase.

Another important aspect of purchasing land or properties for development is to be able to act quickly on competitive opportunities. Working with a funding partner who you can rely on is vital when looking at how to purchase a site quickly.

Understanding development costs

Detailed financial planning is critical—not only to secure the right funding, but also to ensure you’re protected if the unexpected happens.

A common pitfall for developers is diving into projects without a full grasp of the financials. The key is to start with a clear financial projection that encompasses all potential costs—from construction to marketing. Incorporating a contingency fund of at least 10-15% will help to cover unforeseen expenses.

I’ve seen a lot of successful developers incorporate advanced financial planning techniques. For example, using scenario analysis helps anticipate various market conditions, while a sensitivity analysis can help developers see how changes in the market or the development itself could impact the bottom line.

Main Contractor or Self-Procurement

Most established developers will have a well-trodden path of using either a main contractor for the whole project or organising a team of subcontractors.

Both have their pros and cons but for even the most experienced of operators it’s worth revisiting this from time to time and benchmarking the two options.

A developer’s first instinct is often to self-procure as this is invariably less costly than using a main contractor and they believe that they are effectively stripping out the main contractor’s overhead to deliver a cheaper build.

However, it’s more nuanced than this and warrants more careful consideration by developers beyond costs alone. Just as most of us appreciate that fixed price contract sums can vary, so we all know that self-procuring is much more involved and requires considerable management.

The simple message is that the obvious choice isn’t always the best one and it’s important to weigh up the pros and cons of both options from time to time – even for the most experienced of operators.

Choosing the right lender

Specialist lenders like MSP Capital are pivotal in the success of development projects, as they offer more flexibility, and often quicker turnarounds, than traditional banks.

Before deciding on a lender, it’s essential to know what you need from that partnership. This will help you measure value for money. Are you looking for the cheapest option, or the funder who can support your long-term objectives through flexibility and great service?

Our tailored approach adapts to the unique needs of professional developers. We assess projects based on figures, the developer’s track record, and the project’s viability in the current market.

Having a clear exit strategy, whether through sale or refinance, is also crucial when securing funding, as it allows the lenders to assess the risk in funding the project.

Common pitfalls in lending applications

A frequent issue that can delay or derail the lending process is the submission of incomplete project information. Detailed project plans, realistic timelines, and credible sales forecasts are essential to convey the feasibility of your project to lenders, which could help secure more favourable lending solutions.

Further strategies to enhance profit margins

  • Market Research: Understanding your target market can help build homes that meet consumer needs and capture premium pricing.
  • Phased Development: A phased approach can reduce initial outlays. Make sure to adjust phases based on market conditions and sales success.
  • Pre-Sales: Securing a portion of sales before beginning construction will reduce financial risk and bolster cash flow.

Leveraging specialist expertise

lee merrifield

To speak with Lee or another expert about Development Finance simply fill in the form and click Submit.

Developers who partner with specialist lenders like MSP Capital, benefit from not just financing but also expert guidance and flexibility should you need it.

We see ourselves as partners in your development journey. Our expertise across various market conditions and project types allows us to provide valuable insights that can avert costly missteps.

By understanding these strategies and engaging with the right financial partners, developers can achieve the best possible financial outcomes. At MSP Capital, we support your development ambitions with strategic funding solutions tailored to your project’s needs.

If you would like to understand more about how MSP Capital can support your development project, please complete and submit and enquiry form and one of our experts will be in touch.

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