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Date: 12 May 2022

Author: Lee Merrifield

The construction material shortage continues to add pressure to property professionals

We’re still seeing lots of positive activity in the selling of finished stock, with the housing market remaining buoyant and achieving strong values. However, the dual impact of Covid and Brexit had already been leading to prolonged supply chain pressures and project delays.

Now we have the added pressure of rising inflation, higher energy costs, the Ukraine crisis and potential sanctions on Russia as well.

These ongoing and intensifying demands on the sourcing and delivery of construction materials, plant and labour are likely to increasingly impact the time it takes to complete projects.

Developers at risk of disruption on their projects may need to consider fresh cost assessments and potential refinancing so they can avoid or mitigate any exposure to contractual liability.

Recent news about the construction industry

The Construction Leadership Council warned last year of demand far outstripping the supply of essential on-site materials such as cement, electrical components, paints, sealants, coatings and adhesives, so putting prices up substantially.  Over the last three months, the CLC have warned that inflation has further increased by 10-15% on the prices of materials.

At the same time, the Office for National Statistics confirmed that between December 2020 and December 2021 the price for all construction work increase by 21.5%.

And amid rising inflation, living costs and the crisis in Ukraine, the Federation of Master Builders has identified new challenges in sourcing further construction-related products such as timber, steel, bricks, roof tiles, aluminium, copper and bitumen.

As a result, some developers will need to ensure more flexibility in their project finance to accommodate delays.

Handling delays for projects already underway

“On new and future projects, developers will want to be reassured they have adequate flexibility in their loan and financing arrangements to respond if required to any supply chain-related problems.

Using a specialist property lender, like MSP Capital, can really help when you’re looking for flexibility together with an understanding of the industry and your unique situation. Because of our experience in the property market we are more able to look at projects on a case-by-case basis and, where appropriate, we can provide an element of additional  support via forward funding for some key payments to help ease the burden and maintain momentum on site.

Research from Atelier and Paragon Building Consultancy claim that 31% of developers polled are planning for a contingency of 10% or more for a standard residential development worth £3m, double the 5% margin typically budgeted for.”

Planning for longer timeframes on future projects

On new and future projects, developers will want to be reassured they have adequate flexibility in their loan and financing arrangements to respond if required to any supply chain-related problems.

Using a specialist property lender, like MSP Capital, can really help when you’re looking for flexibility together with an understanding of the industry and your unique situation. Because of our experience in the property market we are more able to look at projects on a case-by-case basis and, where appropriate, we can provide an element of additional  support via forward funding for some key payments to help ease the burden and maintain momentum on site.

Research from Atelier and Paragon Building Consultancy claim that 31% of developers polled are planning for a contingency of 10% or more for a standard residential development worth £3m, double the 5% margin typically budgeted for.

With nearly 20 years of property experience, Lee Merrifield, Underwriting & Credit Manager, is ready to assist you

or call Lee on 01202 743400

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