Construction Activity Falls At Fastest Rate Since Covid Began

Construction Activity Falls At Fastest Rate Since Covid Began

The S&P Global/CIPS UK Construction Purchasing Managers’ Index has shown a huge decrease in activity within the construction sector. Finding the activity had fallen to an index score of 48.8 in December 2022. This was down from 50.4 in November. To put this in perspective any score below 50 represents a contraction in output. Whilst above 50 represents growth.

This, therefore, marks the end of a three-month period of growth within the sector. December is the first time that housebuilding activity has declined since August. This is the fastest decline since May 2020, during the first covid lockdown.

Housing Experts Comment

John Glen, the chief economist at CIPS, commented “The construction sector was stuck in the mud in December with the steepest fall in activity since the beginning of the pandemic in May 2020 and a similarly fast drop in pipelines of new work.” He explains that supply chain managers have “reined back spending” on building materials. This is reportedly the steepest fall in buying behaviour for over two and a half years. Glen also added that “Builders were reining back on recruitment unconvinced there will be enough growth in the UK economy in 2023 to justify additional expenditure when margins remained so squeezed. Builders are fast running out of the resilient spirit maintained over the last couple of years as the blocks to success piled up and the winter of discontent, with high inflation, strikes and shortages, continues”.

Lewis Cooper, S&P Global Market Intelligence economist stated that it was a “poor finish” to 2022 for the UK construction sector. “With the outlook turning negative, staffing levels declined for the first time since the start of 2021 in December. The data shows that companies are preparing to face significant challenges in the months ahead,” he stated.

Further Challenges

Although there were falls in activity the average lead times are at the highest since June. Industry experts have stated this is due to product shortages and shipping issues. In addition, construction costs increasing due to energy prices, materials, and fuel costs.

Scape chief executive Mark Robinson comments “The construction industry is braced for a tough year and, while there are positive signs that inflation has peaked, increased material costs will undoubtedly continue to shape the plans of developers and local authorities – that latter of which will be confirming their annual budgets this month,” he said. Maintaining clear, positive dialogue in 2023 will be crucial if projects are to progress uninhibited, and calm and cautious management will likely pay dividends further down the line when purchasing decisions are ready to accelerate again.”

Furthermore, the Bank of England’s interest rates have been rising steeply. These have now hit a 14-year high in December with a rate of 3.5%. According to Halifax, the average house price in the UK fell for the fourth month in a row in December, dropping by 1.5% compared to November. Halifax Mortgages director Kim Kinnaird commented “Some potential home moves have been paused as buyers feel increased pressure on affordability. And industry data continues to suggest many buyers and sellers are taking stock while the market continues to stabilise”. Last month Halifax forecast an 8% house price fall for 2023.

How Development Finance Could Help

Development finance is short-term funding for large-scale property development and construction projects. It can be used to fund the purchase of land as well as building costs. If you are struggling with the current economic climate and need further support to start your development project, BLG is here for you.

We are a leading principal lending specialist in property development finance, we are positioned to help you. Providing residential and commercial finance ranging from £1 million to £15 million we have the ideal skill set to lend and advise. Priding ourselves on fast decisions and flexible terms we can aid you through these turbulent times.

Contact our financial experts today who will take the time to get to know you and your aims.

A Guide For SME Developers Around ESG

A Guide For SME Developers Around ESG

It is widely reported that the construction and development sector has one of the largest business footprints. Construction building is accountable for around 40% of all global energy consumption. In addition to 23% of air pollution, 40% of drinking water pollution, and 50% of landfill waste. Cement alone is a high contributor, accounting for around 8% of global carbon emissions. Every construction step has an impact on the environment. From the materials and technology used as well as the construction sites built. As a result, many experts are calling for the construction sector to act and move towards an ESG framework.

What Is ESG?

ESG is a collective term made up of three components: environmental, social, and governance. All of which measure a business’ impact on society, and the environment, and how transparent and accountable they are. In addition to how robust and transparent its governance is – this is in terms of company leadership, executive pay, audits, internal controls, and shareholder rights.

What Does This Mean For The Construction & Development Industry?

Within the construction industry and for SME developers there are key considerations that need to be looked at under an ESG framework:

Many current ESG requirements are outlined within Building Control requirements.

Why Implement ESG Principles?

According to CBI the UK’s premier business organisation, two-thirds of investors consider ESG factors when investing in a company. Thus, they are looking at not only the growth of the business but also the impact on the environment and community. Additionally, PwC reported that over two-thirds of customers would buy from companies that support ESG initiatives with customers more willing to pay more for greener products. Lastly, research conducted by LinkedIn found that 71% of professionals would be willing to take a pay cut in order to work with a company that shares their values. In addition, 39% would leave their current role if their employer were to ask them to do something that was against their morals. Therefore, even for SME developers, companies who adopt an ESG framework can benefit greatly. Including reducing risks, securing investments, lowering costs, and increasing reputation leading to more new customers.

How To Implement ESG For SME Developers

Implementing ESG as an SME builder comprises a three part process:

  1. Firstly, a business has to measure and understand its current impacts such as carbon emissions. British Business Bank has summarised some steps on how to measure ESG. These include deciding what to measure, gathering the information, and including stakeholders.
  2. Based on this analysis, a business then has to outline goals and ways in which to improve these. Such as reducing energy use or improving employee well-being.
  3. The next step is to roll out the ESG program to your company to improve the overall baseline and impacts.

Although every business is unique in the way it operates and is set up, there are some core principles that can be followed. British Business Bank has outlined how to implement ESG. These include creating a team, investment, measuring, and communication.

One important factor to consider is that ESG is here to stay and many lenders will start having ESG criteria and metrics for their borrowers.

Help To Buy Scheme Deadline Extended

Help To Buy Scheme Deadline Extended

Following our previous blog “Help To Buy Scheme To End” there have been further developments. Housing minister Lucy Frazer has confirmed that the practical completion deadline has been extended by one month.

This has come from the construction industry explaining the various delays outside the home builder’s control. This includes supply chain and labour issues and thus a number of reservations would be at risk of missing the government’s Help to Buy deadline.

Therefore, if a property is going to miss the original Practical Completion date of the 31st of December 2022, this has now been extended to the 31st of January 2023. This forbearance is only available to customers who already have an Authority to Proceed (ATP) or Authority to Exchange (ATE) in progress. No cancelled applications will be reinstated, and no new or additional reservations can be submitted. Additionally, the clause of this is developers have to notify Homes England (in writing) by 20th of December 2022.

Home Builders Federation has commented “Homes England will shortly contact all developers with an active reservation, notifying them of the amended first longstop date. As part of the correspondence, developers will receive access to an online form requiring details of each individual reservation that will make use of the additional forbearance period. There will be no extension to the deadline for this correspondence of December 20, 2022.”

However, the final legal completion deadline of 31st of March 31, 2023, still stands, as confirmed by Lucy Frazer.

Help To Buy Scheme To End

Help To Buy Scheme To End

The Government’s application deadline for Help to Buy: Equity Loan Schemes has now closed (31st October 2022). This now means that by the 31st of March 2023, any first-time buyers must have legally completed their property. Homebuyers are expected to have the keys to their home by 6 pm. Homebuilders must tell homebuyers in advance if they cannot meet these dates. If these are not met, they will not be eligible to use the equity loan.

Originally launched in 2013 for first-time buyers of new-build homes to help them onto the property ladder. First-time buyers based in England who put down a deposit of at least 5% of the cost of the property, could use the scheme to borrow up to 20% of a property’s price. This was from the UK Government and interest-free for the first five years. Helping the buyer stretch their budget as well as access mortgages with cheaper interest rates.

Numbers released by the UK Government revealed over 55,000 households bought their home with the support of the Help to Buy: equity loan in the financial year 2020-21. Since its inception in 2013, more than 355,000 new-build properties have been bought with the help of an equity loan. The Home Builders Federation (HBF) states the scheme has generated about £60 billion in economic activity. The number of homes built in England went up from 110,530 in the year to June 2013 to 183,450. In total, the value of these equity loans has reached over £22 billion, with the value of the properties sold under the scheme going past the £90 billion mark.

However, the UK Government has stated that there are no plans to extend or replace the scheme when it ends.

The Impact Upon Home Builders

Under the terms of the Help to Buy: Equity Loan Funding Administration Agreement, homebuilders are required to reach Practical Completion by 31st of December 2022. This might mean considering the number of working days during December to ensure the deadline is met.

If this date cannot be met, the homebuilder must tell the buyer in advance and return their reservation fee in full. You must also tell your Help to Buy agent and contact the Help to Buy Claims team by email at [email protected].

Furthermore, if the homebuilder has exchanged, they must also unconditionally release the homebuyer from the contract and return their deposit. There is no deadline for exchange, but homebuyers must legally complete it on or before the 31st of March 2023.

Lastly, the removal of advertising is the responsibility of the home builder. Any marketing activities or advertising boards, for instance, need to be stopped and removed. Any costs that are incurred due to this are the responsibility of the home builder.

Is Now The Right Time?

Neil Jefferson, managing director of the HBF, believes that Help to Buy has been one of “the most successful government home ownership interventions in history and handsomely delivered on all its pre-set objectives. For the first time in decades, there is now no government scheme in place to support first-time buyers to purchase new homes at a time when political and economic instability has seen mortgage availability challenged”.

The National Federation of Builders (NFB) also does not believe this is a good time to end the scheme. Rico Wojtulewicz, head of housing and planning policy, says: “We have lobbied the government to keep Help to Buy and reform it in a way to ensure it supports certain criteria, such as higher energy-efficient housing, on smaller plot sizes of houses only, or to help specific people who struggle the most to borrow, such as families needing bigger homes or single people.”

Experts within the industry believe that no scheme will lead to a drop in the number of homes built. In addition to the impact on social housing in terms of wannabe buyers having to spend longer in rented housing to consider. A survey conducted by the Royal Institution of Chartered Surveyors has already started to see this trend of the letting market growing. Struggles with money will increase and many people will be left with the choice of staying at home, “bank of Mum and Dad”, shared housing, or renting if possible. Leading to another struggle for first-time guys getting on the housing ladder. Wojtulewicz explains: “With fewer people being able to access mortgages, the housing crisis will no doubt worsen as people continue to pay more in rent, live with parents longer or in overcrowded homes”. Housing Today believes “the government should not back away from its manifesto pledge of building 300,000 new homes a year by the middle of the decade. We badly need more homes, and a lack of supply is a major factor in creating problems of affordability for both buyers and renters”.

Average London Rent Hits Record High

Average London Rent Hits Record High

There is a lot of noise at the moment around the UK government, the cost of living, and house prices. It is clear to say that every day seems to be different. As a result of this sadly, 1 in 4 young renters have reported that they are thinking of moving away from London due to the cost of living. With rent and house prices being higher than ever before.

Research shows that the average weekly rent price in London has increased to £553. With the average advertised rent prices increasing by 16.1% over the past year. Charitable foundation Trust for London found that between April 2021 and March 2022 the average rent for a one-bedroom property cost the equivalent of 46.3% of the gross-median pay in London, compared to 26.4% for the rest of England.

London, estate agent Foxtons stated that the increase was due to a combination of demand and a shortage of rental properties. Estimating that of the 23,000 rental properties that came on the market, in September 2022, there would be 29 people competing for one singular property. Furthermore, SpareRoom, a site that helps people looking for flatmates, found that more than seven people are competing for each available space in London. This is almost double the rate compared to the rest of the country. Lastly, Rightmove found there were 9% fewer available properties on the market, with demand for rentals increasing by 20% overall. Therefore, the demand is high however, the number of rental houses and flats in London is down.

Pocket Living build flats for first-time buyers and surveyed 1,000 renters aged 25-45. They found that within the first 12 months, 27% of renters were considering leaving London. Marc Vlessing, Pocket Living’s chief executive, said the situation was “one of the clearest indicators that London faces being gradually leveled down”. However, whilst London has the highest rent in the UK in other places such as Bolton, Walsall, and Salford, they have seen affordability drop the most since the pandemic.

The average price of a property in the UK has nearly tripled in the last 22 years and has increased by more than 60% over the past 10 years. It is difficult to see what the future holds for the housing market in the UK, especially over the long term.  However, many housing experts believe there is a critical requirement for more affordable housing and for developers to build more buy-to-let houses.

Development Finance With BLG

According to recent research, about 145,000 affordable homes will need to be built annually for the next five years to address the UK’s housing crisis. BLG is a leading principal lending specialist in property development finance, we are positioned to help you. Providing residential and commercial finance ranging from £1 million to £15 million we have the ideal skill set to lend and advise. Priding ourselves on fast decisions and flexible terms we can aid you through these turbulent times. Contact our financial experts today who will take the time to get to know you and your aims.

 

 

 

 

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