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Material and wage increases being taken on by construction companies. Construction contractors are not passing on the full impact of the rising costs of materials and wages, amid fears of a credit crunch backlash from clients unable to secure finance for new orders, according to the latest Tender Price Index compiled by RICS’ Building Cost Information Service (BCIS).
The price of new construction work in Q1 2008 fell by 2.4 percent compared with the previous quarter whilst costs rose by 1.1 percent in the same period.
Latest figures not encouraging The securing of finance for new orders has become harder according to the latest Bank of England figures released today on the health of the credit industry.
Growth in financing for the housing market has slowed to its lowest levels in recent times.
In all the increase in net lending secured on dwellings was £3.1 billion, this figure is below the increase in May and the previous six-month average. These figures will come as no surprise to a housing market that is starting to see house prices stop rising and in some circumstances fall as a result of tighter credit lines.
The numbers of loans approved for house purchase stood at 36,000, remortgaging at 84,000 and other purposes 45,000. All figures were lower than in May.
The government in recognising the housing market crisis has indicated that they may have to give a taxpayer guarantee to billions of pounds of mortgage market bonds.
This comes with a report commissioned by the Treasury that has suggested possible options to reviving the housing industry through stimulating the mortgage market.
The assessment of the outlook for mortgage finance is due to be published later by Sir James Crosby, the deputy chairman of the City watchdog, the Financial Services Authority.
Overall workload demand for the year to Q1 remained on trend, despite drops in public (-6%) and private (-10%) housing workloads, on the back of an increase in the amount of infrastructure, public non housing and commercial work being undertaken. However a fall in new work output is expected for 2008, with output remaining unchanged in 2009, but increasing at around its long term trend rate in 2010.
The increasing pressure of rising input costs however should see tender prices improve throughout 2008 providing demand remains reasonably stable. The future Peter Rumble, BCIS Information Services Manager says, "contractors appear to be a little nervous about future workloads currently, and with new work output expected to fall slightly this year, input cost rises are likely to be the key driver of tender price rises. Input cost rises are currently quite strong, and are expected to remain so over the coming year."
Rumble also says he has been taken aback by the impact of the credit crunch on the construction industry saying, "the credit crunch and the slowdown in economic growth are expected to have a greater effect on construction output than first thought. However, it is anticipated that the public non housing and infrastructure sectors will both grow over the next three years, with particularly strong growth in 2008 and 2009.”
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