The downturn in the UK property market is beginning to trigger broader financial stress, suggests a study of insolvency trends by Moore Stephens, the Top 10 Accountancy firm.
Moore Stephens says a number of sectors that depend on the health of the residential property market, ranging from construction businesses through to estate agencies, have started to see higher levels of corporate insolvencies as house price growth slows.
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% (see table below).
Sales of products consumers tend to buy when moving home, such as white goods, have also declined as sales at household goods stores dropped 3% in the month of October 2018*.
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.
Lee Causer, Partner at Moore Stephens, says: “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.”
“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 in a tailspin.”