Outstanding construction lending down for the first time since pre-pandemic
The latest market analysis by specialist property lending experts, Octane Capital, has revealed that the monthly average level of outstanding lending within the construction industry fell by 4% in 2022, the first annual decline seen since 2019, with residential construction the only sub-sector to see growth at 9.2%.
Octane Capital’s analysis of Bank of England lending data shows that £35.8bn was outstanding across the construction sector in 2022. Not only does this mark a 4% annual decline, but it’s the first annual drop seen since the pre-pandemic market in 2019 and the largest annual fall since 2016.
In fact, the construction of domestic buildings is the only sub-sector to have seen growth in amounts outstanding on an annual basis. The £5.9bn outstanding in 2022 marked a 9.2% annual increase, reversing the downward trend seen the year before when amounts outstanding on the construction of domestic buildings dipped by a notable 19.8%.
Amounts outstanding of net lending associated with civil engineering saw one of the largest year on year reductions at -6.1%, as did the development of buildings (-5.3%).
However, when taking a longer term view, it’s the commercial sector that has seen the most consistent decline in amounts outstanding of net lending.
While the commercial construction sector saw a smaller annual decline of -4.3% in 2022 when compared to other sub-sectors, it marked the eighth consecutive year on year reduction seen over the last decade.
The -4.3% decline seen in 2022 was also the highest annual reduction seen since the pre-pandemic market in 2019 and the fifth largest drop seen over the last decade.
CEO of Octane Capital, Jonathan Samuels, commented: “The residential property market is yet to show any real signs of decline despite the higher cost of borrowing following a year of interest rate hikes. This market confidence is also clear where lending and amounts outstanding within the construction sector is concerned, with domestic construction the only sub-sector to have seen growth in amounts outstanding over the last year.
“However, the increased cost of borrowing has reduced appetites across other sub-sectors, although these negative trends had already begun in 2021 due to the complications and economic/market uncertainty caused by the pandemic.
“Whether or not we see an uplift in 2023 will rely largely on how the economic landscape develops over the coming months, but we can expect the commercial sector, in particular, to continue to underperform when compared to the momentum that has built across the residential space.”