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Mortgage finance availability stymies housing developments

Private housing construction has suffered severely from the financial market turmoil. Many projects have been put on hold due to limited mortgage availability, falling house prices and the deteriorating economic climate.

In the last quarter of 2008 private housing saw a particularly severe slowdown, with the value of underlying project starts half that of a year earlier. Analysis by Glenigan shows that projects starts have remained at this depressed level during the four months of 2009.

The volume of planning approvals has also been hit hard with numbers down by 72 per cent year-on-year during the first three months of 2009. This year has also seen a decline of 40 per cent in every part of Great Britain.

During the fourth quarter of 2008, the value of underlying construction starts was half that of a year earlier at £1.6 billion and a similar decline has been recorded during the first four months of this year. This also means sub-contractors and suppliers will have to compete vigorously for the limited work available

The credit crunch has hit hard on the general housing market as homeowners’ and investors’ access to mortgage finance has dried up over the last year. Potential homeowners now have to provide substantial deposits in order to secure a mortgage commitment. The Nationwide also recorded a 15.9 per cent fall in house prices during 2008, its largest ever annual decline.

The decline in the value of detailed planning approvals has been even more significant, with approvals 72 per cent down on a year earlier during the first quarter of 2009.

The deterioration in new housing project starts is confirmed by a fall of 55 per cent year-on-year in the number of English private housing starts during the fourth quarter of 2008, recorded by the Department of Communities and Local Government (DCLG).

London, which had previously performed quite well, has suffered a fall in new project starts over the last six months. Glenigan show project starts in the Capital during the three months to April 2009 63 per cent down on a year earlier.

Private housing construction starts in Northern Ireland have been an exception to the rule, as project starts were boosted by work starting on the £75 million Donegall Quay development.

The future for the private housing sector remains bleak. Glenigan does not expect any significant improvement for the sector over the next 12-18 months. The credit crunch and the depending UK recession are set to have a lasting impact on demand.

Near term, Glenigan forecasts the value of underlying construction starts during the second quarter of 2009 will be 69 per cent down on a year earlier. There are simply far fewer projects in the pre-construction pipeline, so even if credit market conditions improve, there will be less volume of work starting on site.

However, the underlying potential demand for housing continues to grow due to population growth and changing housing needs. An anticipated recovery in private housing construction starts during 2010 as mortgage funding and market confidence gradually return.

Client Focus:Barratt Developments

Major Project: Barratt have been awarded the main contract for a £141m development of 819 flats and 5 commercial units in Central London. Work is expected to start in August 2009 and will comprise comprehensive mixed use redevelopment of land between two railway bridges, construction of eight buildings ranging in height from 5 to 22 storeys, a leisure centre (including a swimming pool), shops, and a business space. Associated work includes public and private open space, 201 car parking spaces, 893 cycle spaces and 20 motorcycle spaces, an energy centre and associated highway works.

Past Activity: Barratt are currently involved in 1,091 projects and are the main contractor in 838 of these. From 2007 to 2009 ytd Barrat have been awarded contracts in 172 projects with a total value of £1,017m.

Latest News: In this year to date Barratt has performed particularly well in the Capital with projects valued at £249.76, most notably in private and social housing construction.

Contractors they have awarded work to: Ward Homes, David Wilson Homes, Your Homes.

Contact: Head Office: 020 7299 4898, www.barratthomes.co.uk

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