Property lenders get a boost from construction recovery
The construction sector has returned to growth after a nine-month downturn, thanks to increased activity among both commercial and residential projects.
IHS Markit’s purchasing managers’ index rose to 52.6 in February, up from 48.4 in January. It is the first time since April 2019 that the sector has registered above the 50 mark, which indicates growth rather than contraction.
Alternative property lenders have heralded the positive data, which follows an increase in house prices.
Read more: Mortgage approvals soar thanks to Boris bounce
Last month, the overall rate of construction output growth was the fastest for 14 months and the increase in new work was the steepest recorded for just over four years.
Residential activity remained the best-performing construction category with the data showing the strongest expansion of housebuilding activity since July 2018.
“Since the Election the housing market has benefited from greater direction, there is a government with a large majority, it is committed to building more houses and Brexit has been decided,” Andrew Turnbull, managing director of Wellesley, said.
“So, 2020 has started well and activity has increased, the one key uncertainty at present is the coronavirus and what effect this will have in the UK as this could delay a further recovery in activity.”
“Before the election, a lot of people were sitting on deals and waiting to see what happens with the election and with Brexit,” said Roxana Mohammadian-Molina, chief strategy officer at Blend Network.
“They were on a ‘wait and see’ mood. Now, we see people coming back and really wanting to get the deals done.
“We see a lot more optimism both in London and across the UK regions. People are looking to get the deals across the line following nearly three years of uncertainty.”
Neal Moy, head of property finance at RateSetter, said that confidence in the sector has been boosted by greater political stability following the General election, including more clarity on Brexit, and he hopes that confidence continues to grow.
“Activity levels in the property development sector are rising – RateSetter property finance deal flow remains strong and we have noticed that recently more developers have repaid their loans early as they complete the sale of their developments more quickly,” he said.
However, some platforms have not experienced the Boris bounce.
Arya Taware, founder and managing director of FutureBricks, said that it only applies to larger projects.
“We have not seen any dip nor any bonus as we focus on smaller projects below £5m mark as these kind of projects are last to get affected because use of end product is for domestic use,” said Taware.
“Such instant price sensitivities in my opinion applies to bigger projects where most of the end units are sold off as investment products than for end users for the purposes of primary residence.”
Read more: Property platforms to benefit from new market certainty
The survey also revealed that construction firms are still upbeat about their growth prospects for the next 12 months.
The degree of optimism in February dipped from January’s survey, but remained much stronger than seen in the second half of 2019.
“The Boris bounce has boosted sentiment among housebuilders and breathed new life into UK bricks and mortar,” said Gareth Belsham, director of the national property consultancy and surveyors, Naismiths.
“For a few months now there has been a growing sense of optimism in the construction sector and this is the strongest evidence yet that there is some real substance to it.
“Private sector developers who were sitting on their hands in 2019 and generally mothballing projects against such an uncertain political backdrop are now back in the game.
“The industry is acutely aware of the uncertainty that trade negotiations with the EU could yet bring in but for now housebuilders are making hay while the sun shines.”
Tim Moore, economics director at IHS Markit, reiterated that February’s survey data supports signs that the UK construction sector is recovering.
“Growth of business activity was stronger than at any time since the end of 2018, supported by the fastest rise in new orders for just over four years,” he said.
“There were widespread reports that pent-up demand released since the General Election had helped to boost workloads, especially in relation to housebuilding and commercial construction projects.
“Some construction firms suggested that the recovery in output would have been even stronger had there not been disruptions on site from severe weather conditions in February.”