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Property construction has experienced a significant slowdown in recent months, with developments being mothballed and builders unwilling to start projects, and this is unlikely to change until the banks start lending again, according to experts.
Work began on around 16,300 housing builds in England in the last three months of 2008, a decline of 27 per cent compared to the previous quarter and down by 58 per cent from the same period in 2007, according to the UK Statistics Authority.
Annual figures were also lower, reducing to a total of 105,000 developments last year, a fall of 37 per cent from 2007's figures and 43 per cent down on the peak period between 2005 and 2006.
In addition, the number of completed building projects in 2008 was also significantly reduced, decreasing by 19 per cent to 141,900.
Furthermore, new construction orders fell last year, with just 4,471 for private housing compared to 7,877 in 2007.
Private commercial building submissions also dropped year-on-year, down from 13,003 to 9,449, while industrial construction fell from 2,630 in 2007 to 1,909 last year.
Over the last few months there have been continual reports of declining lending against increased investor interest.
The Council of Mortgage Lenders' (CML's) latest statistics show that finance deals dropped again in January, with only 23,400 loans for house purchase approved, down from 32,400 in December and less than half the amount in January last year.
First-time buyer lending fell by 27 per cent between the final month of 2008 and the first of this year, with banks handing out just 8,900 loans to people trying to take their initial step on the property ladder.
The value of loans also dropped significantly, by 59 per cent, year-on-year.
"January and February are usually the quietest months in the mortgage market. The current withdrawal of many specialist, small and foreign lenders from new lending has created a huge gap in the capacity to fund mortgages to match consumer demand and this is continuing in 2009," explains Michael Coogan, director general of the CML.
The Royal Institution of Chartered Surveyors (Rics) agrees that the desire to purchase property exists, particularly among first-time buyers, but they are unable to get the finance necessary.
It says that the knock-on effect of this is that builders are unwilling to start projects or are suspending work on current construction, due to fears that there will be no customers at the end of the chain.
Rics anticipates that fewer than 80,000 homes will be built this year, well below construction levels in 2006 and a significant departure from the targets set by the government for 240,000 houses to be built annually.
James Rowlands, policy project manager at the organisation, says authorities must respond to the Crosby review's recommendations for mortgage lending, claiming that more guarantees and securities are needed to give the banks more flexibility.
"We know the demand is pent up but it's not actually coming into actual purchases because first-time buyers can't get the mortgage finance," he claims.
Home building has been affected more than commercial property construction so far, Mr Rowlands states,as the sector is more exposed to these sorts of problems.
Nevertheless, commercial property has not been unaffected and infrastructure projects are starting to be afflicted.
"The credit crunch has hit companies trying to borrow in the same way as people trying to borrow so banks are not willing to lend where they've lent before and they're not willing to lend as much as they would have done," he explains.
Mr Rowland adds that private finance initiatives have been affected by the downturn as banks see these projects as too risky and are halting lending to investors.
Last week, the government was forced to step in and announced a £2 billion fund to support these schemes, particularly for hospitals and schools.
"The lending problem is holding up development because the people who would normally develop can't because they can't get the funding to be able to do that," Mr Rowland asserts.
A recent report by a Communities and Local Government committee called for the government to stick to its original targets and increase the proportion of social housing available.
Chair of the panel Dr Phillis Starkey said: "The message which we received from witnesses during our inquiry was clear: the steps the government is taking are welcome, but further action is needed if the government is to have a chance of meeting its targets for home building and achieving the goal of a decent home for all."
Mr Rowland claims there are other measures the government can implement to stimulate financing.
"There's potentially something they can do now that they have such a large stake in RBS and Lloyds that they could try and put more influence there to encourage those banks to lend," he states.
Mr Coogan, of the CML, says current government schemes to restore the flow of funds are primarily aimed at a limited number of large banks, which means that the commitments by a few financial institutions will not solve the problem overnight.
However, Mr Rowland acknowledges that a level of patience will be required before the market gets moving again.
"It will be, to some extent, a case of waiting and eventually the banks will come back into the business," he says.
As for how long it will take for the sector to recover, Mr Rowlands believes that it is impossible to give a timeframe.
"It depends on a combination of government action and just when there's some confidence that comes back into the industry and also the banks coming to lend again," he concludes. |
