Weak housing market will lead to more insolvencies.
James Salmon, 18th January 2019.
The weak housing market is predicted to lead to more insolvencies. New research by the accounting firm Moore Stephens hints that if the signs we are currently seeing of a downturn in the UK housing market, come to fruition then this will cause distress in the sectors that rely on “a buoyant housing market”. Their report says that this could be the trigger that increases corporate insolvencies.
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.”
Moore Stephen’s insolvency trends study has shown that the downturn in the UK’s property market is now beginning to trigger broader financial stress. A number of those sectors that depend upon a healthy the property market – construction companies, materials companies, kitchen and bathroom, carpets and tiling business – 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%.”
“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.”
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%.
Causer continued “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.”
How can CPA help?
Do you sell to businesses in the sectors vulnerable to a weak housing market? As the market tightens, and many businesses are caught in this wave of insolvencies. will your customers be swept along. Are any in danger, will any of your customers go bust owing you money?
Just because you have been dealing with a customer for many years without any issues, it doesn’t mean you are trading risk free.
Healthy companies can see their fortunes change , leaving suppliers who have extended credit caught out.
Just look at how many big companies such as Carillion have disappeared already in recent years.
At the Credit Protection Association, we provide first class credit information that can help you avoid being over extended to customers who are at risk. Our monitoring service can flag up warning signs long before the end, giving you the chance to adjust and reduce your exposure. We provide recommended credit limits and credit scores on a traffic light system and can help you set appropriate credit policies for your customers.
We regularly publish lists of the latest insolvencies but by then it is too late. Our credit reports predict approximately 96% of company insolvencies long before they arrive.
Companies in trouble usually have very bad bad cash flow and they try to deal with it by delaying payment to their suppliers, increasing your exposure to them.
As a third party collector, we can get your payments prioritised over those who are not as hot on collections. When you customer receives a letter from the Credit Protection Association regarding their outstanding account, they are going to want to get that resolved as a priority. Our overdue account recovery service can get your unpaid invoices to the top of their “to do” list and get your invoice paid.
Our debt recovery and credit management services give our members the financial freedom needed to grow and prosper, while our new Late Payment Compensation department could unlock hidden potential and offer the compensation needed to springboard your business to success.
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