Scottish Housing Market Review: Q1 2025

11. Lending to House Builders, Insolvencies and Construction Prices

11.1. Lending to House Builders

The average value of outstanding loans to housebuilders in 2024 (£6.5bn) was 7% higher in nominal terms than in 2023, and 8% higher than 2019, prior to Covid. Deflating the value of loans by the construction output-price index to scale trends in lending relative to the activity financed by that lending, while there was 3.9% increase in 2024, the level of lending in 2024 was 17% lower than its pre-Covid level in 2019, reflecting the sharp rise in construction output prices after Covid (see Chart 11.3).

Source: Bank of England

11.2. Insolvencies

The number of construction companies registered in Scotland entering insolvency fell during 2020 during the early phases of the Covid pandemic, before rising during 2021. The trend has subsequently flattened out around pre-covid levels: the 202 insolvencies recorded across the whole of 2024 was little changed from the level in 2023 (203) and slightly (2%) lower than in 2019. In contrast, while the number of insolvencies of construction companies registered in England and Wales fell by 8% in 2024, the 4,032 insolvencies recorded in 2024 was 25% above the level recorded in 2019.

Source: The Insolvency Service

11.3. Input and Output Prices for New Housing

Data from the UK Government shows that the annual growth rate in the cost of construction materials used in new house building, which had reached as high as 24.0% in June 2022, moderated sharply thereafter and has fluctuating around zero since June 2023, although it has been at or slightly over 1% in each of the most recent 3 months (November 2024 to January 2025).

ONS average weekly earnings data show that annual growth in total pay in the construction sector has accelerated in recent months, from 1.9% in the three months to May 2024 to 5.9% in the three months to January 2025.

ONS construction-output price data shows that the index for new housing, which covers a range of costs associated with building new public and private housing (including materials, plant & labour, and profit mark-up) reached a peak of 12.2% in June 2022 driven in large part by the spike in materials prices. It then fell to 2.0% in March 2024 as material-price inflation moderated, but has subsequently edged up to 4.0% in December 2024 due to the upward trend in earnings growth.

Source: ONS and UK Government