Scottish Housing Market Review – Q4 2021

House Building: Lending 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 an increase in October and November 2021, remained slightly lower than the value of loans in February 2020, immediately prior to the impact of Covid-19. As at November 2021, the value of loans stood at £5.9bn, a decrease of £217m (or 3.5%) relative to February 2020 (£6.2bn).

Source: Bank of England

Construction Material Prices

Data from BEIS on the cost of construction materials used in new house building (Chart 7.2) 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 21.0% in November 2021, although, this is a slight decrease from the annual increase to October 2021 (22.6%).

The annual increase in prices has been driven by certain products, namely fabricated structural steel (+66.1%), particle board (60.4%) and concrete reinforcing bars (+56.6%). There were modest decreases in the price of Gravel, Sand, Clays, and Kaolin (including aggregate levy) of -6.4% and for screws and other similar products equal to ‑5.1%.

Source: BEIS