Distress for sectors reliant on housing market

According to Moore Stephens, there are signs that there is a downturn in the UK housing market, which is causing distress in the sectors that rely on “a buoyant housing market”. This could be the start the trigger that increases corporate insolvencies, the firm has warned.

Lee Causer, partner at Moore Stephens, said: “It seems the impact of the downturn in the UK property market is already being felt by a number of related sectors.

“We’ve had such a long run of house price increases that few commentators are sure how a correction in prices will play out.”

The downturn in the UK’s property market is now beginning to trigger broader financial stress, Moore Stephen’s insolvency trends study has shown. A number of those sectors that depend on the “health” of the property market (such as construction businesses) are now starting to see higher levels of corporate insolvencies as growth slows.

Moore Stephens stated: “Insolvency Service data shows that the number of businesses becoming insolvent in the architectural and engineering sector has jumped 11% to 178 in the last year (to September 30). Estate agent insolvencies rose to 163 in the last year and construction sector insolvencies by 9%.”

“The jump in insolvencies could suggest the economy is beginning to sputter,” Causer said.

Furthermore, the firm has revealed that their findings highlight a decrease in the sales figures of white good purchased by consumers who are moving to a new house. As of October 2018, sales at household goods stores have decreased by 3%.

The firm’s report continued: “Rising interest rates, as well as the economic uncertainty caused by Brexit, have slowed the growth of residential property prices across the UK and caused prices in London to fall.”

Causer concluded: “In the UK, a large amount of people’s wealth is tied up in house prices. When there is a rise in the value of property, it causes a ‘wealth effect’, and when prices fall, it causes the opposite effect, which drags down consumer confidence.

“Because turnover in the UK housing market is so active, and the construction sector comprises such a large percentage of the economy, when the market takes a significant downturn it naturally spills over into the wider economy.

“We last saw that during the collapse in residential property prices in 2008, which put the whole economy into a tailspin.

“A domino effect of insolvencies created by a disorderly Brexit appears likely to be very painful for the rest of the UK economy.”