The second quarterly Home Builders Federation (HBF) and Quantum Development Finance (QDF) SME Developer Sentiment Survey shows that there has been a marked deterioration in confidence among SME home builders since the first quarter of 2026.

Compared with the previous survey, expectations for land purchasing, housing starts and housing market conditions have all weakened. The findings suggest that ongoing economic uncertainty caused by the Iran conflict is constraining SME developers’ appetite to bring forward new sites.

However, the findings also reinforce that geopolitical uncertainty has exacerbated, rather than solely caused, the pressures facing SME home builders. Development viability was the most frequently cited supply-side constraint facing SME developers, overtaking planning delays, while weak buyer confidence and affordability pressures continue to weigh on development activity.

These regulatory, economic and policy headwinds are particularly acute for SME developers, who tend to be more exposed to market volatility, rising costs and delays in the planning and development process.

The SME Developer Sentiment Survey tracks changes in SME home builder confidence over time and provides robust evidence to policymakers on the barriers preventing smaller firms from expanding. While the policy challenges facing SME home builders are well documented, the survey results provide a broader understanding of how these barriers are being experienced in practice and the extent to which they are influencing business confidence and investment decisions.

The second quarterly HBF and Quantum Development Finance Sentiment Survey ran from 8 May until 22 May. A total of 110 SME developers participated, an increase from 100 in the previous survey. The survey was open to all SME home builders, not solely HBF members.

There is no single fixed definition of what constitutes an SME developer. For the purposes of this survey, and to capture a full range of perspectives, we accepted responses from developers building anywhere from a handful of homes to around 500 per year.

As in the first survey, respondents represented a broad cross-section of SMEs. Around two-thirds (67%) of respondents were at the smaller end of the scale, typically delivering between 1 and 100 homes each year. Compared with the first quarterly survey, a larger proportion of respondents were operating at the smaller end of the market, with those building between 1 and 10 homes accounting for 13% of the total, up from 3% in Q1.

The survey received responses from developers operating across all English regions and Wales. As in the first quarterly survey, the South East had the highest representation, with 45% active in the region. The South West (23%), the East of England (18%) and the East Midlands (17%) were also well represented. Overall, the geographical profile of respondents was broadly similar to that of the previous survey, allowing meaningful comparisons of sentiment.

Compared with the first quarter, all measures of SME sentiment and confidence deteriorated significantly in the second quarter, including expectations for land purchasing, housing market conditions and new housing starts. Respondents pointed to the impact of the Iran conflict and the resulting increase in economic uncertainty as a major factor in this deterioration.

Overall, 93% of SME home builders said the conflict had made their business outlook for the next 12 months worse than expected. Just 1% disagreed. More than a quarter of respondents (26%) said the conflict had led their business to reconsider or pause the acquisition of new sites.

The most common effects of the conflict reported by respondents were:

• Reduced buyer demand or slower sales - reported by 62% of SMEs
• Increased costs of certain materials - 61%
• Difficulty forecasting costs/increased business caution - 51%.

Other notable effects included higher energy costs (35%), increased borrowing costs (14%) and delays in receiving materials (13%).

The findings reinforce that, unlike larger house builders, SME developers can find it more challenging to absorb sudden increases in costs.

Nevertheless, the scale of the decline in sentiment suggests that the conflict has primarily exacerbated existing pressures, including development viability challenges, affordability constraints and weak buyer confidence.

While the conflict itself is beyond the Government’s control, the findings suggest that further interventions to support the domestic housing market could help mitigate some of its effects. In particular, weakening buyer demand reinforces the case for a new Government equity loan scheme to stimulate effective demand and support first-time buyers. Similarly, measures to improve development viability could help offset some of the increased caution reported by SME house builders.

Expectations for land purchasing activity fell sharply between the first and second quarters of 2026. In the first quarter, a net balance of +5% of developers expected to purchase more land for development over the following three months. By May, this had fallen to a net balance of -31%.

Overall, nearly half (49%) of SME developers expect to purchase less land in the next three months, including 31% who expect to purchase significantly less. By contrast, only 18% of SMEs expect to purchase more land in the next quarter, down from 32% in the previous survey.

The decline in sentiment was evident across developers of all sizes. Among smaller developers building up to 75 units per year, the share expecting to purchase less land rose from 28% to 47%. Among those building 76 units or more per year, the equivalent figure increased from 24% to 52%.

The findings suggest that SME developers are taking a more cautious approach to land acquisition in response to current market conditions. Given the importance of land purchasing in determining future housing supply, a sustained reduction in activity could constrain the pipeline of sites coming forward for development.

This deterioration in sentiment is also reflected in expectations for construction starts over the next three months. In Q1, SME developers' expectations for housing starts were cautiously positive, with a net balance of +12% expecting to increase the number of homes they start. By Q2, this had fallen to a net balance of -23%.

Overall, 35% of respondents expect activity to remain about the same, while 44% expect housing starts to decline.

This decline in expectations for housing starts was consistent across developers of all sizes. Among those building between 1 and 75 homes per year, 44% expect starts to fall over the next three months, including 24% who expect a significant reduction. This compares with 19% who expect to increase starts.

Larger SME developers building 76 or more homes per year reported a similar picture, with 43% expecting to reduce starts in the next quarter and only 25% expecting to increase them.

The findings suggest that economic uncertainty and weaker market conditions are increasingly affecting developers' willingness to bring forward new projects. Given the role SMEs play in delivering housing on smaller sites that would not otherwise be developed, a sustained reduction in housing starts would have implications for overall housing supply

SME developers' outlook on the housing market was mixed during the first quarter of 2026, but sentiment has since shifted in a more negative direction. A net balance of -71% of respondents expressed a negative outlook for the housing market over the next three months, compared with -9% in the first quarter.

Overall, just 4% of respondents reported a positive view of the market, while 75% expressed a negative outlook.

Housing market sentiment varied by region, however. The South West recorded the most negative outlook, with 93% of respondents reporting a negative view of market conditions and the remaining 7% reporting a neutral outlook. The South East (84% negative) and East of England (77% negative) also recorded particularly weak sentiment.

By contrast, the North West, Wales and the North East showed relatively greater resilience, although sentiment weakened in every region. In both the North West and Wales, 50% of respondents reported a negative outlook, the lowest proportion across the regions. The North East recorded the highest level of positive sentiment, with 25% of respondents reporting a positive view of the market.

As with land purchasing and construction of new homes expectations, current market conditions are acting as a significant constraint on SME developers' willingness to bring forward new sites.

Almost all respondents (94%) said market conditions are causing caution in starting new sites, up from 70% in the first quarter. This includes nearly half (48%) who said conditions are causing ‘significant’ caution or are delaying starts altogether, while a further 45% reported that market conditions are causing ‘moderate’ caution. Only 3% said current conditions are encouraging expansion, and none reported that they are encouraging significant expansion.

Taken together, the findings suggest that prevailing market conditions are continuing to suppress development activity among SME home builders.

To provide further context to the findings on market sentiment, respondents were asked to identify the three most significant demand-side and supply-side constraints affecting their ability to deliver new homes.

On the demand side, over two-thirds of respondents (69%) cited housing market conditions as one of their top three constraints, making it the most significant demand-side barrier and replacing low buyer confidence as the most frequently cited challenge. Low buyer confidence remained a major concern, however, identified by 63% of respondents.

Mortgage interest rates also rose from sixth to third place compared with the first quarter (cited by 41% of respondents, up from 22%), reflecting growing uncertainty around the future path of interest rates and inflation.

Affordability pressures also remained widespread, with 34% of respondents identifying affordability as a key constraint on housing delivery and 21% citing the cost of living as a barrier.

Taken together, the findings suggest that weak market confidence and affordability challenges are continuing to limit demand for new homes. As such, there was strong support for additional measures to assist prospective first-time buyers. Overall, 87% of respondents said additional support for buyers would make them more likely to start new sites, including 56% who said it would make them very likely to do so and 31% who said it would make them moderately more likely.

This strong support for additional Government intervention for first-time buyers shown by SME home builders suggests that introducing such a scheme would strengthen effective demand and encourage SME home builders to increase activity.

In terms of supply-side constraints, development viability emerged as the most significant challenge facing SME home builders, overtaking planning delays as the most commonly cited barrier.

Three-quarters of respondents (75%) identified viability challenges as one of their top three constraints, up from 57% in Q1, highlighting the challenge of bringing forward new sites given the growing burden of policy and regulatory costs. Indeed, almost all respondents (99%) said Government measures to improve viability would make their company more likely to bring forward new sites, including 83% who said it would make them very likely to do so.

Planning delays also remained a major obstacle, with 74% of respondents citing the planning process as one of their most significant constraints. This reflects the continued difficulties many SME developers face in securing timely planning decisions and progressing sites through the development process.

In addition, the cost and availability of materials also became a more significant concern during the second quarter. The proportion of respondents identifying this as a key constraint increased from 10% to 30%, likely reflecting concerns about inflationary pressures and uncertainty over future costs following the conflict in the Middle East.

Other issues, including Homes England funding and support, the Building Safety Regulator and water-related constraints, were cited less frequently but continue to affect a meaningful proportion of SME developers.

HBF's SME Home Builder Sentiment Survey is issued every quarter. Learn more about the survey and how to get involved.