Latest data analysis by Mazars has found that on average a dozen construction firms are going bust every day after 4,370 firms collapsed last year.
In the year to the end of November, 4,370 companies went insolvent compared to 4,086 in 2021/22 and 2,481 in 2020/21. This reflected a 7% increase in insolvencies from 2021/22 and 76% in 2020/21 due to high material and labour costs.
The auditing company said that the increasing costs of borrowing have affected the profit margins of ongoing and upcoming development projects.
Moreover, the surge in mortgage rates, which have reached a 15-year high, has resulted in a decline in consumer confidence. This has led to a decrease in prices after dramatic rises for residential housing over recent years.
Over the last 12 months, bankruptcies in the construction sector were mainly caused by specialised activities such as demolition, electrical and plumbing – which accounted for 58% of all bankruptcies.
Mark Boughey, Partner at Mazars, said “There are now on average a dozen building companies going under every single day in the UK. This is an immensely difficult period for the construction sector.
“One problem is that the commercial viability of a lot of today’s projects were assessed three or four years ago, with fixed price contracts often being negotiated – since then, costs have spiralled, while buyers’ appetite has taken a dive.
“Construction contractors operate on very tight margins at the best of times – the sector is really being squeezed at both ends right now.”
“We saw a number of bigger contractors filing for insolvency 12 to 18 months ago and now those failures are being felt downstream in the supply chain. Sub-contractors aren’t getting paid on time or to the agreed levels and, as a result, are now starting to experience their own financial problems.
“The impact of failures in the sector cuts both ways though – when smaller companies fold, it can cause major delays for the main developers in completing projects.
“Whilst some of the headwinds around increasing borrowing costs and material prices have eased, we’re unfortunately likely to see these difficulties persist through 2024 and into 2025.”