What will be the impact of increased mortgage rates for homeowner have on sub-contractors involved in home building projects?
Aside from the already substantial increase to their own costs (materials, workforce, business loans) plus a reduction in their markets cash reserves, there will certainly be a significant impact on subcontractors now that the interest rates have again increased for homeowners.
As part of our ongoing effort to support the construction industry, specifically the smaller businesses that provide sub-contracting services we wanted to explore what these specific issues may be.
Have a read and please let us know if you think any of these will, or already apply to your own business and cash position.
Reduced demand for new homes
When mortgage interest rates rise, it obviously becomes more expensive for potential homebuyers to borrow money to purchase properties. And can deter some individuals from entering the housing market or make it more challenging for them to qualify for loans. As a result, there may be a decrease in demand for new homes, leading to fewer construction projects and a potential decrease in opportunities for sub-contractors.
Slowdown in housing market activity
Existing homeowners may also be less inclined to sell or upgrade their properties. This can lead to a decrease in renovation or improvement projects, which are often opportunities for sub-contractors. A sluggish housing market can limit the number of construction projects available and impact the workload and income of sub-contractors.
Impact on affordability and budgets
As mortgage payments increase, homeowners may have less available income available for home improvements or additional projects. This can result in homeowners scaling back or postponing construction projects, reducing demand for sub-contractors’ services.
Homeowners may also be less likely to get favourable loans or refinancing because of the rates and impact on their income. This means that projects could be placed on pause or scaled back – directly impacting the trades that would complete the work.
Budget constraints for developers
Higher mortgage interest rates can also affect developers who rely on financing to undertake large-scale home building projects. If borrowing costs for developers increase, they may face budget constraints, which could lead to delays or cancellations of construction projects. This can directly impact sub-contractors by reducing the number of projects available and potentially affecting their revenue and profitability.
We would encourage sub-contractors to stay informed about market trends and adjust their strategies accordingly to adapt to changes in demand for construction projects. If you are looking to improve your cash position, explore how to more quickly recover money owed to you or simply lay out a more robust credit control process – we are here to help.
We are offering SMEs a free consultation to explore their immediate issues with no obligation to use our services going forward. So if you are struggling with any of these issues, get in touch so we can help you take control
Call us on 01245 976 716 or email Info@creditcontrolmanagementservices.co.uk