Builders cast about for credit

The credit crunch continued to afflict the construction industry on Wednesday, as problems in obtaining loans affected builders and their clients.

The lack of mortgage availability, local authority money stranded in Icelandic banks and other effects of the credit crunch mean the industry is being forced to take radical measures in a world without easy credit.

Shares in Rok, a small building and maintenance company, halved on Wednesday after it detailed how the banking bail-out in October had left consumers, companies and even the public sector cutting back on spending.

Garvis Snook, chief executive, said local government bodies – usually the most resilient spenders during construction’s periodic downturns – were pushing back spending on construction and maintenance to next April in an attempt to stay afloat.

“The Icelandic situation has undoubtedly [had an effect on] that,” he said. “Local authorities can’t stop paying their staff’s wages, so construction spending is the first to go.”

The public shortfall comes as private-sector clients continue to struggle to obtain financing for construction projects, much as home buyers have seen mortgage offers evaporate since the collapse of Northern Rock in 2007.

Financing difficulties are also affecting builders themselves.

Taylor Wimpey, the housebuilder grappling with £1.7bn of net debt, is close to sealing a deal to take a cut in its agreed banking facility as part of terms with creditors about fresh conditions on its loans.

Under the deal, the company would pay much more interest on its debt in exchange for more lenient debt covenants, according to people close to the situation.

The plan, which is to be put to public bondholders as early as next week, would see Taylor Wimpey pay down several hundred million pounds of debt and pay creditors a hefty arrangement fee.

PwC, the consultancy, is next week expected to reveal 537 construction companies went bust in the third quarter, up 46 per cent year on year.

Those figures only include two weeks of trading after the collapse of Lehman Brothers, the US investment bank, which Mr Snook pointed to as the point at which activity fell sharply as confidence evaporated.

The downturn is adversely affecting the trade’s long supply chain, with subcontractors shedding thousands of jobs and suppliers such as builders’ merchants facing fewer orders and longer payment terms.

A glimmer of good news came from Redrow, the smallest of the listed nationwide housebuilders, which on Wednesday published it had received a £13.5m tax refund from prior year profits.