Directors of construction companies forced to lend £550m to maintain cashflow

Brexit fears and a slowdown in the housing sector has put a squeeze on the construction sector forcing directors of UK construction companies to lend £550m to their own businesses in the last year, up from the £528m in 2017

The amount of lending is up £22m in the last 12 months, according to analsysis by Moore Stephens. Total new UK construction orders fell 12% to £61bn in 2018 down from £70bn in 2017, with longer term uncertainty about Brexit contributing to a slowdown in the UK construction industry.

The situation has been made worse for directors because the property slowdown has made banks more wary of extending extra finance to the sector. Banks are wary of over-exposing themselves to the construction sector not solely due to the losses they sustained in the sector through the global financial crisis. But also due to recent losses they have sustained through lending to companies such as Carillon.

Lucienne Parry, partner at Moore Stephens, said: ‘Many construction companies, in particular the smaller ones, are scrambling to find external finance to help tide them over. Many directors have been left with no other option but to personally contribute even more money to fund their own businesses.

‘Demand has fallen for new projects in the last couple of years. However, even when builders do win contracts their clients are taking longer than necessary to pay, which is squeezing working capital.

‘It is likely that even more directors are going to have to make the tricky choice between putting more of their own money into their own business or letting it go to the wall.’

Part of this slowdown in the construction industry can be attributed to falling house prices in some areas of the UK. London property prices in particular have suffered since the Brexit vote, with average house prices in the capital falling 3.8% in the latest year to February 2019, up from a 2.2% fall in the year to January 2019.

Sara White

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