The UK housebuilding sector has experienced a significant setback due to higher mortgage rates, with activity falling at its steepest rate in more than a decade. Development companies expect a market downturn due to the increase in interest rates.

Total housing completions in the financial year just ended were down 3.9% on the previous 12 months. The last six months of 2022 saw Barratt Development complete 6.9% more homes than 2021, but the first six months of 2023, completions were off 12.8% on the same period earlier, now proposing they may build 20% fewer homes. This change is suggesting the rise in interest rates is starting to have an impact on homebuyers, especially first time buyers. 

Clive Holland, presenter at Fix Radio – the UK’s only national radio station dedicated to tradespeople – provides his insight on the current state of the construction industry:

“The government target of 300,000 houses to be built per year, even before COVID was extremely unrealistic for a couple of reasons. After Brexit, a lot of our support teams went back to their own countries; we didn’t have enough people in our industry, and we’re already short of tradespeople as it is. Everybody except for emergency services, and the building industry, believe it or not, and trade-associated trades virtually stopped working during COVID, you know, 80% of the population were furloughed, and so on. So it was always going to be a tricky one to try and get anywhere near that demand of 300,000 houses built. 
 
“Now you’re in a situation where many house builders have mothballed a lot of their sites because they can’t sell them due to rising interest rates. Lots of sites around the country would have been flooded with people buying off-plan without even looking at the house.” 

Whether it be battling against record material and labour prices, a historically small workforce, regulations that stifle the ability for builders to work, as well as being in the grips of a mental health crisis, the construction industry is facing significant obstacles.

The latest PMI Survey revealed that builders attributed this decline to higher borrowing costs and a “subdued” outlook for the housing market. Despite the UK avoiding a recession, as confirmed in the most recent Budget, the construction industry is still significantly hampered by a crippling skills deficit and record material prices. The latest Construction Skills Network report cites that the UK needs an extra 225,000 workers by 2027 to meet construction demand, the equivalent of 45,000 per year. Overwhelming work schedules, material shortages and new directives such as ULEZ have left hundreds of thousands of small businesses – equalling 27% of SMEs in the trade – on the verge of breaking point and collapse, a study from Fix Radio found.

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