Cost of Materials - Up, up and away!

You have heard all the slogans, "Build Back Better etc".... part of the Governments strategy to drive growth across the economy. Build, Build, Build!” it cries. Build more and better homes, deliver new transport infrastructure—roads, railways, airports, etc.—and?get cracking on more commercial, office and retail space. I myself have even wrote articles on here about the up coming opportunities that will present themselves.

However, the?emergence?of the?Covid-19?pandemic, coupled with the impact of Brexit, has?created?problems for the country’s construction industry, one of them being a building materials shortage. Demand for materials has inevitably risen, yet supplies have slipped, and prices are rising. Anecdotally, we are seeing stories of how difficult it is to get cement in any quantity, as well as roof tiles and timber being in just as high demand.

This was brought to may attention sharply last week when discussing a project with a Developer, he told me he was ￡60,000 over budget half way through the build, purely down to materials price increases since he did his cash-flow forecasts. He explained that wood had jumped in price 2 to 3 times and was expected to increase by 30% in the next 6 months. He also told me that construction firms were pulling out of fixed priced contracts due to margins being evaporated by materials cost increases!

This could explain why here at Adsum we have seen a jump in enquiries for our VAT receivables loan product on materials expenditure. Simply put, this is where businesses incur capital expenditure on materials or stock which attracts VAT. We then take those invoices with VAT and lend against the reclaim. A recent case of mine was where a developer spent ￡250,000 on materials with 20% VAT, he was able to borrow ￡50,000 to help his cash flow with the project.

If you would like to know about how we can help with working capital, please do not hesitate to get in touch.