Outstanding construction lending falls for first time since 2019

The monthly average level of outstanding lending within the construction industry dropped by 4% in 2022, according to market analysis by Octane Capital.

Octane’s study of Bank of England lending data revealed that £35.8bn was outstanding across the construction sector last year, marking the first annual drop since the pre-pandemic market in 2019, and the largest annual decline since 2016.

Residential construction was the only sub-sector to see growth at 9.2%, with £5.9bn outstanding in 2022, reversing the downward trend seen in 2021 when it dipped by 19.8%.  

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.

“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,” said Octane CEO Jonathan Samuels.

“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.” 

Jonathan highlighted that the increased cost of borrowing had reduced appetites across other sub-sectors but noted these negative trends had already begun in 2021 due to the complications around economic 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,” Jonathan added, “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.”

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