Small house builders reveal post-recession struggles

Small house builders across the UK are struggling in the wake of rising property prices and government incentive schemes, new research suggests.


While larger firms were able to build record profit margins, smaller rivals are reporting damage on their balance sheets as they find it difficult to access the finance they need.


A recent National House Building Council survey revealed that half of small building firms reported that banks were becoming more reluctant to lend.


This makes it more difficult for them to fund projects and access the materials that are required, despite positive conditions in the market.


The Home Builders Federation points to record low interest rates and a 20% increase in housing starts in the last 18 months, but still the smaller firms are finding it difficult to operate.


Some major banks have launched incentive schemes to help in a bid to ensure that more building firms do not follow in the footsteps of those that went under following the financial crisis.


Financial flexibility and equity are key for construction firms throughout the development process while smaller firms play an essential role in the overall market.


They will take on smaller jobs and plots of land that are not suitable or worthwhile for larger firms who are looking to build in large volumes.


Despite this, the report reveals a market that is dominated by medium and large-sized firms, something that is also reflected in the Lyons Review of UK Housing.


It points to a changing landscape among building firms – in 1977 58% of housing was constructed by small firms but now that figure is just 27%.


Nearly 40 years ago larger companies developed under a quarter of all housing but not the trend is reversing.


For building firms facing financial difficulties or fearing liquidation, seeking advice from insolvency practitioners may provide appropriate solutions.


In some cases where projects cannot be completed, lenders are left with difficult decisions relating to whether to enforce their security and finish a project or to sell in its unfinished state.


These situations require careful management on behalf of all parties but it is possible to find solutions that are beneficial.


By Phil Smith


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