Can lenders fund tall buildings with confidence?

A tall residential scheme can often look unattractive to a lender before the numbers are even opened. The building safety regime introduced by the Building Safety Act 2022 is technical, approval dates are uncertain and many lenders do not have an internal team that deals with higher-risk buildings every day. The cautious response can be to treat the sector as too complex.

Whilst that level of caution perhaps is understandable, complexity alone does not make a scheme unfundable. The regime has not removed the lender’s ability to assess risk. It has changed where the decisive risk sits. In a conventional development loan, delay and cost overrun dominate. On a higher-risk building, the lender must also ask whether the regulatory information and approvals will survive a default, a change of project team and the eventual exit.

The useful distinction is between risks that consume time and capital and risks that remove options. A longer Gateway 2 period can be reflected in the facility term, interest reserve and longstop. A broken evidence trail, an unapproved major change or an enforcement plan that cannot deliver Gateway 3 may leave the lender with a part-built asset that is difficult to finish, occupy or sell. A higher margin does not restore those options.

Tall buildings can still be financed with confidence, but regulatory execution has to be treated as part of the lending risk. The aim is to keep three routes open throughout the loan. The lender needs to be able to continue with the borrower, to replace the borrower or project team if necessary, and to exit through sale or refinancing.

The real risk is loss of options

A new higher-risk residential building broadly means one that is at least 18 metres high or has at least seven storeys and contains at least two residential units. It faces two hard regulatory stops. Work cannot begin until the Building Safety Regulator has approved it at Gateway 2. Once construction is complete, the building needs a completion certificate and must be registered before residents can move in.

The latest figures show that Gateway 2 performance is improving. In the 12 weeks to 31^st August 2026, the median approval time for new buildings and conversions was 22 weeks and the approval rate was 92 per cent once invalidated and withdrawn applications were excluded. That still calls for a programme measured in months, but it is a delay that can be modelled.

Gateway 3 presents a different question. As of 31^st August 2026, no new-build project that had passed through Gateway 2 had reached Gateway 3. There is therefore no body of completed cases from which a lender can judge the likely timetable. More importantly, the regulator can reject the completion application if the work does not comply or the required information is incomplete or inaccurate. That can affect occupation, sales and refinancing at the point when the loan expects to be repaid.

A lending assessment that groups all of this under a single heading of building safety risk misses the commercial distinction. Some events mainly increase interest and carrying cost. Others can impair the asset or remove a repayment route. They need different diligence, controls and contingency.

The evidence record supports the security value

At Gateway 3, the regulator compares the documents approved at Gateway 2 with the latest drawings, plans and control documents. It reviews the change control log, the declarations from the principal designer and principal contractor, the client’s confirmation of compliance and the handover of building information. It also inspects the completed work.

For a lender, the golden thread is therefore more than project administration. It is part of the evidential route to a completion certificate, occupation and a saleable asset. If the approved design, the building on site and the record of changes cease to match, the problem may remain hidden until the value of the lender’s exit depends on resolving it.

The monitoring role needs to reflect that. Cost-to-complete and progress against programme remain essential, but they do not show whether the building is staying on its approved regulatory path. The lender also needs reporting on design stability, change classification and the state of the evidence record. Any emerging gap between the approved documents and the work on site needs to be visible early.

This does not make the lender responsible for demonstrating compliance. It gives the lender early warning. A short, regular report on the health of the evidence is more useful than a late assurance that a large data room exists.

Enforcement depends on the regulatory file

Traditional step-in rights are designed to keep the building contract and professional appointments alive after a borrower default. A higher-risk building adds another dependency. The regulator must be told about a change of client, principal designer or principal contractor, and the outgoing party must provide a signed statement on how it has fulfilled its duties. The application reference, the online application account, the approved documents, the change log and the wider golden thread must also remain accessible.

Default is the worst time to discover that key records sit only in a contractor’s system, that the borrower alone controls the application account or that an outgoing dutyholder is unwilling to cooperate. Enforcement planning can address those points before first draw. Direct agreements and facility undertakings can cover continued access to records, delivery of declarations and reasonable assistance with a change of dutyholder or client.

A lender that can appoint a replacement contractor but cannot establish what was approved and what has been built may control the site without having a credible route to completion. In this context, information continuity is part of effective step-in protection.

The ownership route also matters after completion. Depending on the structure and repairing obligations, a person holding a legal estate in possession of the common parts may be an accountable person with continuing statutory duties. An enforcement strategy that could leave the lender or its nominee holding that interest needs analysis before enforcement, not after it.

Sponsor risk extends beyond the borrower

Development finance commonly uses a single-purpose borrower to contain project risk. The Building Safety Act does not abolish that structure, but it makes the sponsor group’s history more relevant to the lending decision.

Where the High Court considers it just and equitable, a building liability order can extend specified liabilities of one company to an associated company. The association test is based on corporate control. Relevant liabilities include liabilities under the Defective Premises Act 1972 and liabilities arising from a building safety risk. Limitation periods for relevant Defective Premises Act claims are generally 15 years for rights accruing after the provisions commenced and 30 years for earlier rights.

The point is not that a lender automatically inherits those liabilities, or that every sponsor with older developments is unsuitable. The real question is whether claims, remediation commitments or group liabilities elsewhere could weaken the support available to the current scheme. Due diligence on the sponsor’s legacy portfolio, live claims and corporate structure gives context to parent guarantees and cost-overrun support. A guarantee is only as strong as the guarantor after those exposures are taken into account.

Underwrite the exit before first draw

Most development loans are repaid from sales or refinancing. On a higher-risk building, practical completion under the building contract does not by itself produce an occupiable or readily saleable asset. The statutory sequence leading to the completion certificate and registration has to work as part of the repayment case.

Valuation instructions can make those assumptions visible. The lender needs to know what timetable the valuer has assumed for Gateway 3 and registration, and what happens to value if occupation is delayed. The valuation also needs to reflect how the intended buyers or refinancing lenders are likely to view the design and compliance record. Where the scheme depends on phased occupation or sales, the partial completion strategy must have been included in the building control approval application and followed when the certificate is sought.

The levy adds a related cash-flow point. For applications within the Building Safety Levy regime from 1^st October 2026, the whole charge for the application must be paid before the regulator can issue any full or partial completion certificate for the relevant works. A phased exit cannot be modelled safely without understanding how the building control application, partial completion strategy and levy payment fit together.

An investment buyer or refinancing lender will repeat much of this diligence. Weaknesses in the regulatory record discovered at exit tend to become delay, a price adjustment or both. Testing the likely exit market while the loan is being approved is therefore more useful than assuming demand will appear once construction is complete.

What specialist lending looks like

A lender does not need to duplicate the regulator or the project team. It needs an approval process that recognises which issues require specialist input and facility documents that preserve visibility and options.

Before first draw, that means testing the approved scope, the regulatory programme and contingency, and the design assumptions on which the valuation depends. It also means confirming the intended route to full or partial completion, the sponsor’s wider exposure and the practical step-in plan. During construction, monitoring needs to cover evidence and change control as well as cost and physical progress. Significant regulator correspondence, proposed major changes and changes of duty holder or client need to reach the lender early enough to matter.

As completion approaches, a focused readiness review can test whether the documents, declarations, handover and levy position are capable of supporting the certificate application.

The facility maturity and longstop dates can then reflect the route from construction completion to occupation and repayment, rather than treating those events as simultaneous.

Expertise can expand the lending market

The government remains committed to enabling 1.5 million new homes in England during this Parliament. Taller buildings are not the only answer, but on suitable urban sites they can make a meaningful contribution. Projects that cannot obtain finance will not deliver homes, however strong the underlying demand.

For lenders, the opportunity lies in information and selection. A lender with the right internal capability and advisers can distinguish a scheme with a credible regulatory route from one that merely carries a large contingency. It can support the former without pretending that the latter is made safe by price alone.

Confidence comes from preserving choices. If the lender can see how the project continues, transfers and exits, regulatory complexity becomes capable of being underwritten. That expertise can open a market from which less prepared lenders may continue to step back, while helping viable tall-building schemes contribute to the housing supply the country needs.