Development lenders have been warned to account for the Building Safety Levy throughout underwriting and monitoring as the new charge could prevent schemes reaching completion if it has not been adequately funded.
LendInvest and MDA Consulting have set out the development finance implications of the levy in a joint technical whitepaper covering calculations, regional rates, brownfield discounts and transitional arrangements.
The levy applies to qualifying residential schemes in England creating 10 or more homes, or at least 30 purpose-built student accommodation bedspaces. It applies irrespective of building height.
COMPLETION AND REDEMPTION RISK
One of the principal issues identified for lenders is that the levy becomes a single cost before the first completion or occupation certificate can be issued.
Where sufficient funds have not been allowed for, the paper warns that building control authorities can withhold certification. That could prevent developers completing unit sales or refinancing and, in turn, affect repayment of the development loan.
The size of the liability will depend partly on location. Rates cited in the whitepaper range from £12.70 per sq m in County Durham to £100.35 per sq m in the Royal Borough of Kensington & Chelsea.
A 50% discount is available for qualifying previously developed land where at least 75% of the consented site meets the statutory definition. LendInvest and MDA said the supporting evidence should therefore form part of the underwriting and monitoring process where a borrower intends to rely on the reduction.
The levy is designed to raise approximately £3.4 billion over 10 years towards addressing historic building safety defects. Building control applications submitted before 1 October 2026 are exempt where works substantively commence within three years of the initial application.
“Our role extends beyond providing capital; it’s about offering certainty.”
Dan Lohn (main picture, inset left), relationship manager at LendInvest, says: “As property development lenders, our role extends beyond providing capital; it’s about offering certainty as developers navigate major regulatory shifts like the Building Safety Levy.
“With the Levy directly impacting scheme viability, cash flow timing and completion sign-offs, proactive partnerships are essential. By joining forces with MDA Consulting, LendInvest is delivering practical clarity on complex calculations, brownfield exemptions and adapted funding structures to help SME developers manage these obligations and keep projects moving forward securely.”
Chris Chadwick (main picture, inset right), director at MDA Consulting Ltd, says: “Where much of the post-Grenfell reform agenda is procedural, the Building Safety Levy is a direct cash cost sitting on every qualifying scheme’s balance sheet.
“Calculated on measured floorspace and varying by local authority, its mechanics demand disciplined, stage-by-stage verification so costs are not overlooked.
“In collaboration with LendInvest, MDA is sharing practical guidance to help lenders, developers, and surveyors successfully manage this shared financial risk from initial appraisal right through to final completion certification.”
