Mid development? FF7 shipped in April 2020. PS5's UE5 demo was set to be revealed at GDC in March before covid pushed it back to May, but it was done...
Besides, UE5 is backwards compatible so its not like its a brand new engine. They just didnt want to put in the minimum effort required to transition to a new engine.
UE5 was not "done" in March nor May 2020. Epic showed it as workable tech (in a pre-recorded video demonstration) in May 2020, but even as late as November 2020, elite/pilot level developers did not have access to any builds of those tools.
(The Coalition, for example, is as close to Epic as it gets, and they were intimately involved with Matrix Awakens as well as serve as liaison between Epic and MS, yet they still were working down in UE4 that October, prototyping materials for their first Alpha Point demo. They were probably among the first developers outside Epic to get secreted an early copy, yet it was still months after the UE5 public reveal that Coalition was able to go hands-on with the tech in their office. And BTW, that Alpha Point projects were some rocks on fire and a face. Pretty simple, and even in that, they ended up doing a bunch of custom work instead of using UE5 and assets "off the shelf". For the face project, UE's MetaHuman ended up working for only a portion of the sculpt and groom for the Alpha Point character, to the point where their biggest bulletpoint about Metahuman's value to the project was that it "makes really good teeth and eyes" and that they aligned the topology of their work to MetaHuman as it is future tech which would improve. A developer in a different thread estimated that 90% of the work on the Alpha Point character was beyond MetaHuman, which coincidentally is the same number Coalition mentioned in a 90/10% split between original assets Coalition ended up creating and Quixel materials which worked to plug into the project.)
The timeline of UE5 for developers was a lot more like what we actually saw in public than people conceive of. Epic showed it in 2020, they put out Early Access versions in 2021, they released small-scale but goal-setting works commercially with the Matrix Awakens demo and two major phases of the rebuilt Fortnite in late 2021/late 2022, and they certified the first official UE5 release in April of 2022.
Perception is a problem though, because we gamers are a lot more used to all of this technical stuff happening behind the scenes and us only seeing the "real game" when demos start to pop up using the technology; in this case though, we were there pretty much on the ground floor with the development community. So we saw Lumen in the Land of Nanite 3 years ago and thought, "Oh shit, imagine all the games being made using this
right now that we don't even know about...", whereas game makers were looking at that same unveiling and thinking, "Oh shit, imagine what games we could make
in the future when we get our hands on this tech..." UE5 was in a functional state in 2020 so that they could demo it in pre-recorded video, and in 2021 it was ready for ER to lead into its 2022 launch with the two launch-surrounding projects helping to serve as proof-of-concept/workshop testbeds, but it wasn't really "done" in those early days, and it still has a lot needed to be worked out despite 3 version updates.
Read through developer reports and you'll see frustrations over the promise versus reality of Nanite or Lumen (albeit an overall positive impression of the technology.) Also, there are some features of UE5 which are still underweight and in need of plugin services to supplement/replace the baseline functions, as well as some features from UE4 for whatever reason now sunsetted from UE5 despite it being that some developers were really dependent upon those functions. And play some of the games: Layers of Fear and Remnant 2 and a few others are out, Immortals Of Aveum will be out this week, First Descendant is doing rounds of beta tests, people can go play actual games and see how the tech worked out or how well their hardware can cope with releases made with it. It's not a hidden secret whether or not this tech automatically makes everything better and more "next-gen". UE5 demos incredibly well, and it is capable of some fantastic feats for gamers and some life-saving workflow refinements for developers, but there's not a magic bullet in UE5's cannon. It's a tool in the fight.
They literally started development after the UE5 demo was shown to the world and said to themselves, hey we will stick with last gen tech, last gen hair, last gen character models. it is laziness, plain and simple.
I am absolutely certain UE5 tests were done to estimate the benefits, tradeoffs, and production timeline extension of migrating to UE5 (and maybe even at various stages of UE5's release states) for both Star Wars (Stig alluded to that) and the FF7 port-over. These types of things are rarely if ever "minimum effort", and although UE5 builds on the foundation of UE4, it is not some Super UE4 with 100% Backwards Compatibility.
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