Scottish Housing Market Review: Q1 2022

House Building: Lending to House Builders, Insolvencies and Construction Material Prices

Lending to House Builders

The value of loans outstanding to UK firms involved in the construction of domestic dwellings rose by £1.9bn from February to March 2020, an increase of nearly one-third (31%), as shown in Chart 7.1. The sudden increase likely reflected the need for credit to fund short-term liabilities owing to Covid-19 restrictions on construction activities and home moves, which had adversely affected firms' income. In addition, firms may have drawn down funds as a precaution, given the economic uncertainty.

From May 2020, the value of loans steadily decreased and, despite a slight increase since October 2021, remained slightly lower than the value of loans in February 2020, immediately prior to the impact of Covid-19. As at January 2022, the value of loans stood at £5.7bn, a decrease of £430m (or 7.0%) relative to February 2020 (£6.2bn).

Source: Bank of England

Insolvencies

The health of construction firms can be identified by tracking the number of registered company insolvencies in the construction sector. Chart 7.2 outlines that during the pandemic insolvencies in the construction sector fell, likely due to the business support in place. However, with this support unwinding and new build construction material prices increasing, registered company insolvencies in the construction sector in Scotland increased to 50 in Q4 2021, whilst in England and Wales this equalled 864. Over the one year period to Q4 2021 relative to the year prior, registered company insolvencies in the construction sector in Scotland increased by 32.5%, relative to 25.0% in England and Wales.

Source: The Insolvency Service

Construction Material Prices

Data from BEIS on the cost of construction materials used in new house building (Chart 7.3) shows that construction material price inflation has accelerated since the early stages of the Covid-19 pandemic, when it was in negative territory, to stand at 19.1% in January 2022. However, this has fallen slightly from the high in October 2021 of 22.6%.

The annual increase in prices has been driven by certain products, namely fabricated structural steel (+51.0%), particle board (45.4%) and concrete reinforcing bars (+40.0%). There were modest decreases in the price of Industrial materials (thermal or acoustic) and Gravel, Sand, Clays, and Kaolin (including aggregate levy) of -3.3%.

Source: BEIS