The construction and property development sector, after facing significant setbacks, is poised for a robust recovery in 2025, following a predicted third consecutive year of decline in 2024, according to insights from Rangewell.

Over the past three years, the industry has been mired in challenges, with a notable decline in both housing starts and lending. However, according to Rangewell, early signs of a turnaround are starting to take shape, signalling that 2025 could mark a strong comeback for the sector.

Specialist lenders, once hesitant, are now beginning to show renewed enthusiasm. Not only are they more willing to lend, but they are also offering higher loan-to-value (LTV) ratios, indicating increased confidence in the market’s future.

Rangewell’s analysis paints a picture of an industry battling strong economic headwinds in recent years, leading to a more cautious lending environment. Lenders have been selective, carefully weighing their options, yet still eager to seize the right opportunities when they arise.

Outstanding lending across the construction sector has dropped over the last two years, shrinking by 7.2% in 2023 and 4.0% in 2022. Rangewell anticipates a further decline of 5.2% in 2024, making it the third consecutive year of contraction. But, according to their projections, the market is expected to rebound by “high single figures” as early as the first quarter of 2025.

This lending slowdown has had a direct impact on housing starts. In 2023-24, new dwellings plummeted to 162,350, representing a dramatic 19.8% decrease from the prior year. This is a far steeper drop compared to the more modest 2.6% dip witnessed in 2022-23.

Rangewell forecasts that 2024 will see the sector’s market size shrink by 2.9%, marking the first year of decline since 2021. This follows two years of expansion, with growth rates of 23.7% in 2022 and 7.2% in 2023. Nevertheless, this downward trend is unlikely to continue for long.

The Bank of England’s recent 0.25% base rate cut in August, coupled with economists’ predictions of another reduction in November, is set to lower the cost of finance further. This should reignite interest not only in commercial ventures but also in residential projects, as decreasing mortgage rates are likely to spur renewed consumer demand, setting the stage for a revitalized housing market.

Rangewell highlighted the new Labour Government’s ambitious target of boosting housing supply by 1.5 million units. The potential reclassification of certain greenbelt land, combined with a more favourable economic climate and rising homebuyer demand, is expected to fuel lending activity in the latter half of this year.

Alasdair McPherson, head of partnerships at Rangewell, remarked: “The construction and property development industry is emerging from a very lean period over the last few years after being stymied by the economic uncertainty that has enveloped all regions of the UK and we expect the overall market size to contract in 2024 due to the downward trends seen both with respect to lending and new dwelling starts.

“The good news is we’re already seeing improved confidence across the sector and appetites within the lending space have certainly improved during the second half of this year – and continue to grow.

“With a further cut to interest rates likely in the coming weeks and the market starting to build momentum, we expect significantly positive uplifts into 2025 – and are already seeing developers with good projects receiving significantly better lending terms than even three months ago.”

As interest rates ease and lending appetites grow, the landscape of the construction sector appears set to shift dramatically in the coming year. Developers, once constrained by economic turbulence, may soon find themselves better positioned to take advantage of more favourable lending conditions, leading to what could be a pivotal moment of renewal for the industry in 2025.