The first half of 2026 has seen the UK construction sector lose momentum, with output falling despite a strengthening pipeline of future work. While materials inflation has stabilised and labour markets have softened, wider pressures - including high borrowing costs, geopolitical uncertainty and rising commodity prices - are reinforcing a cautious investment climate and driving a subdued, uneven market.
At the same time, the outlook is not wholly negative. Early signs of recovery are emerging, particularly in commercial and infrastructure pipelines and improving sentiment. However, the sector remains distinctly “two-speed”, with some areas showing progress while others continue to be held back by regulation, funding constraints and weak investor and developer confidence.
The latest Building Safety Regulator (BSR) data shows improving performance in the BSR’s handling of Gateway 2 building control applications, with overall approval rates rising to 71%. In the 12 weeks to 1 May, a total of 323 decisions were made, with more applications being processed than received, indicating progress in tackling the pipeline of cases. Efforts to clear legacy remediation cases are also showing results, with the backlog from 2024 significantly reduced and approval rates approaching the 65% annual target. While decision times continue to be skewed by older, more complex applications, newer submissions are moving more quickly through the system, suggesting gradual improvements in efficiency as the BSR strives to streamline processes and maintain safety standards.
Thousands of completed flats continue to remain empty due to delays at the Gateway 3 approval stage, with a recent data snapshot showing 44 schemes still being undecided after more than three months. The latest data from the BSR, published on 2 July, shows that in the 12 weeks to 28 June, the approval rate was 86%, but median determination time was 16 weeks, highlighting a major bottleneck in a process meant to take just eight weeks. While many delays relate to legacy projects with unresolved safety issues, the backlog is frustrating developers and slowing housing delivery. More widely, it reflects a general feeling that the market is “one step forward, two steps back”: progress at Gateway 2 has begun to improve approvals, but ongoing delays at Gateway 3, alongside affordability pressures, viability challenges, and regulatory burdens, continue to stall momentum and keep homes out of use.
Developers are preparing for the upcoming Building Safety Levy, which will come into effect on 1 October 2026. As is well known, the levy is being introduced to fund building safety remediation costs. It will be collected at local authority level.
The levy will introduce a new upfront charge on all new residential and mixed-use buildings that require building control approval. Failure to plan for it early could impact project viability, cash flow and delivery timelines. There are warnings within the industry that schemes expected to beat the deadline may still face delays - particularly at Gateway 2 - potentially pushing them into the levy’s scope and triggering additional costs. Early engagement, clearer planning and more robust applications are therefore taking place and are seen as essential to avoid last-minute complications and financial pressure as the regulatory regime tightens.
The government has published its response to its “Late payments consultation: tackling poor payment practices” consultation, confirming a package of reforms, including a proposed ban on retention payments in construction contracts. The government consulted on either a full ban or the protection of retention monies through ring-fenced accounts or insurance-backed guarantees and has now indicated its intention to proceed with a full prohibition on withholding retentions. This marks a significant shift in a practice that has been very common in the industry for decades. Draft legislation has not yet been published, so many questions remain. What’s clear is that developers will not let this security fall away without replacement. There is expected to be increased demand for alternatives such as bonds, guarantees, escrow accounts, project bank accounts, or insurance-backed products. However, these alternatives may bring their own challenges, including higher costs for projects and potential barriers for some contractors who may lack sufficient bonding capacity. Watch this space.
Following a 2025 pilot, version 1 of the UK Net Zero Carbon Buildings Standard has been published, establishing a unified, industry-led framework for defining and assessing net zero buildings across sectors. The voluntary standard is intended to bring consistency to the market and is likely to gain traction through stakeholder pressure, particularly from investors and occupiers. Crucially, it focuses on measured, in-use performance rather than design-stage modelling, applying only to completed, operational buildings. It sets out mandatory metrics covering areas such as embodied carbon, operational energy, renewable energy generation and fossil fuel use, alongside independent verification requirements to confirm compliance over time. Overall, the standard aims to provide greater clarity and consistency in how the built environment demonstrates and achieves net zero carbon outcomes.
The administration of Ardmore Construction Group on 11 June 2026 is the latest reminder of the challenges facing UK main contractors and therefore the sector more generally. Concerns over legacy project liabilities and weakening cash flow were key contributing factors. Ardmore joins a growing list of major contractors that have failed in recent years, including Buckingham Group in 2023 and ISG in 2024, to name just two of a long list. While each collapse had its own circumstances, a recurring theme has emerged around legacy project issues and cash flow pressures. The UK construction sector continues to record elevated insolvency levels, with 3,973 construction companies in England and Wales becoming insolvent in the twelve months to July 2025, and the sector accounting for around 16% of all insolvencies in March 2026. This serves as a reminder for contractors, developers, and funders to closely monitor project liabilities and maintain financial resilience.
Written by Matt Pearson (Partner), Yasmin Amin (Trainee Solicitor) and Sahibdeep Singh (Solicitor Apprentice).
