Gateway 2 and the New Financing Risk in Higher-Risk Building Projects

The central issue facing higher-risk building projects is no longer simply whether they can be designed and delivered, but whether they can be funded efficiently through an increasingly uncertain pre-construction period. Gateway 2 delays are pushing cost, uncertainty and commercial pressure to the front end of projects, and in doing so they are beginning to alter the way higher-risk developments are financed from the outset.

Section 65 of the Building Safety Act 2022 defines higher-risk buildings (HRBs) as those that are at least 18 metres in height or have at least seven storeys, and contain at least two residential units. That threshold is often understood by reference to the traditional 18-metre reach of a fire engine ladder.

The Grenfell Tower tragedy in 2017 prompted a fundamental tightening of the regulatory framework governing HRB construction. One of the most significant changes was the establishment of the Building Safety Regulator (BSR), together with the introduction of the Gateway regime, which requires projects to satisfy compliance checks at key stages. Gateway 2 is the critical pre-construction approval point. In broad terms, it requires the design to be sufficiently developed to demonstrate compliance with the relevant health and safety requirements before works can begin.

Although the target timeframe for gateway approval is 12 weeks, that timetable has not consistently been met in practice. A House of Lords report published in December 2025 found that the process was taking more than nine months on average. By 29 March 2026, the median approval period had reportedly reduced to 22 weeks – five and a half months – indicating some improvement, but still well outside the target. As such, Gateway 2 continues to cause substantial delay at the earliest stage of HRB development, and that delay has consequences for every party involved in the project.

The Nature of the Risk

What makes Gateway 2 delay particularly problematic is its timing. It arises before construction has properly started, at a stage when project participants are already incurring professional fees, finance costs and programme pressure, but are unable to move into physical delivery. That creates a form of early-stage exposure which is difficult to absorb and even harder to price.

For contractors, the most severe consequence is illustrated by the collapse of FK Group, a façade specialist, which entered administration after its annual turnover reportedly fell from £100 million to £40 million as a result in part of disruption linked to Gateway 2 delays. While this may be an extreme example, it demonstrates how regulatory delay can produce acute financial stress in an already cut-throat sector.

Delay also puts pressure on contractual performance more broadly. Completion deadlines may become more difficult to achieve, potentially exposing contractors to liquidated damages if extensions of time are disputed or unavailable. Prolonged preliminaries, increased professional costs, and disputes about responsibility for compliance-related works outside of the original pricing can all follow. Reputational damage is another concern where project deadlines are repeatedly missed. In addition, these delays affect the wider project team by interrupting procurement strategies, complicating design coordination and placing strain on established approaches to contractual risk allocation. They also raise a further question: who should bear the cost of additional design work or remedial action needed to secure Gateway 2 approval?

The financing position is equally sensitive. Where funding arrangements include longstop dates or make drawdown conditional on Gateway 2 approval, delay can create default risk or force parties back to the negotiating table to revisit pricing, covenant packages or security arrangements.

The Impact on Financing of HRBs

Gateway 2 is changing the economic profile of HRB development because it front-loads both cost and uncertainty. Developers are now required to spend more, and spend earlier, on compliance, design development and regulatory preparation before they are permitted to start construction. At the same time, they may need to hold land for longer, pay interest on existing finance for an extended period and absorb increased uncertainty as to when BSR approval will be obtained.

This marks a departure from the assumptions that have traditionally underpinned development finance. Gateway 2 creates a gap between planning approval and breaking ground, during which substantial expenditure is required without the benefit of construction progress. As a result, developers now need lenders willing to support this more heavily front-loaded phase. Lenders do not appear to be stepping away from HRB projects altogether, but they are applying more rigorous scrutiny. The issues likely to attract attention include the quality and completeness of the Gateway 2 submission, the borrower’s liquidity and ability to withstand a prolonged pre-construction period, and whether there is a clear route into either full development finance or longer-term funding once approval is obtained. In that environment, experienced sponsors with realistic programmes and robust contingencies are better placed to secure favourable terms.

Emerging Funding Responses

At present, it remains difficult to draw long-term conclusions about exactly how HRB developments will be funded in response to Gateway 2 delays, not least because funding structures are rarely disclosed publicly. Even so, there are signs that the market is beginning to adapt.

Specialist funding solutions are beginning to emerge to cover the Gateway 2 stage itself. Karis Capital, for example, has reportedly been structuring facilities designed either as standalone funding for Gateway 2 costs or as combined Gateway 2 and development finance packages, thereby avoiding the need for a separate refinancing exercise once approval is obtained. Examples said to have been supported in this way include a Liverpool residential scheme, a Milton Keynes project funded under a single package covering both Gateway 2 and the build phase, and a northern developer using a £600,000 bridge loan against uplifted land value to fund the Gateway 2 stage.

These examples are still limited, but they point towards a wider market response: the development of funding products specifically aimed at the regulatory and timing risk created by Gateway 2. In that sense, the issue is no longer only one of construction regulation; it is also becoming a matter of financial structuring.

Conclusion

Gateway 2 delay is not merely a procedural inconvenience. It is beginning to alter the financial architecture of HRB projects by shifting cost, uncertainty and commercial exposure into the period before construction begins. That change affects not only developers, but also contractors, consultants and funders, all of whom are required to absorb a form of early-stage risk that traditional delivery and finance models were not designed to manage.

The experience of FK Facades illustrates how serious the consequences of regulatory delay can be. At the same time, the emergence of specialist Gateway 2 funding solutions suggests that the market is adapting rather than retreating. The better view, therefore, is not that Gateway 2 has made HRB projects unfinanceable, but that it has made them more complex to structure and more expensive to carry.

Ultimately, the significance of Gateway 2 lies in the fact that it has moved risk forward in time. For HRB projects, the crucial question is no longer just whether a scheme can be built safely and profitably, but whether it can survive the financial strain of securing approval before construction can even begin.

We have considerable experience working alongside developers and funders at the start of, and throughout, construction projects. More information about our expertise can be found here, alongside some examples of projects we’ve worked on here.