Recent sector forecasts confirm the challenging conditions that many builders’ merchants are already seeing in their own numbers. The Builders Merchants Federation (BMF) has cut its baseline forecast for 2026 from growth of 2.3% to a contraction of 1.8%, pointing to geopolitical uncertainty, subdued consumer confidence and a weaker economic backdrop, compounded by the effects of conflict in the Middle East.
The Construction Products Association's (CPA) summer 2026 forecast is starker still, expecting a fall of 3.3%, with private housing and private housing RMI (repair, maintenance and improvement), the two segments most relevant to merchants, forecast to see the largest falls in output.
In November 2025 National Timber Group, the UK's leading independent timber merchant, entered administration with the loss of over 560 jobs and the closure of 13 branches.
For many merchants, the key question right now is cash, and whether there is enough liquidity to trade through this challenging period. Access to credit is also tightening across the sector, but the businesses that approach lenders early, from a position of preparation rather than pressure, are the ones securing the outcomes they want.
The challenges facing the sector
Builders’ merchants are facing multiple challenges:
New-build demand remains weak: Completions in England totalled 143,110 in the year to March 2026, down from 152,040 the year before and the lowest level since 2015-16. Housebuilding starts are up 15% on the previous year, but input cost inflation means turning that improvement into completions will remain difficult. The government’s ambition of building 1.5 million homes this Parliament is widely judged to be unachievable.
Starts have turned a corner; completions haven't - Both remains below 2019 levels
Source: MHCLG, Housing supply: indicators of new supply, England. Building control reported estimates, year to 31 March, not seasonally adjusted.
The government's National Housing Bank, launched in April 2026 with up to £16bn of capital aimed at unlocking stalled and unviable sites, may help convert some of the improvement in starts into completions, though its effects will take time to come to fruition.
RMI has not recovered: RMI work is, alongside new-build, one of the two main demand drivers for merchant sales, and has not returned to the exceptional levels seen during the pandemic. With fewer households moving, demand is suppressed across the supply chain.
Counterparty failure is a live risk: Merchants extend credit to customers ranging from sole traders to national contractors, and the failure of one significant business rarely stays contained. Specialist subcontractors accounted for 186 of the 343 construction failures in July 2026 alone, and when a contractor of any size goes down, the bad debt it leaves behind can move through its supply chain within weeks, hitting merchants who had no direct exposure to the original failure.
Margins are under pressure as competition intensifies: With demand subdued, the Building Cost Information Service (BCIS) has warned that contractors may be forced to cut prices to secure work, making it hard to balance profitability against competitiveness for the rest of 2026. That pressure on contractor margins feeds straight back to merchants, with regional players also facing national competitors with greater buying power. Insolvencies and branch closures are removing some capacity from the market, but the sector remains highly fragmented, and merchants face growing competition from online specialists and fixed-price operators with large branch networks.
The cost base keeps rising: Given the typical employee profile at merchants, weighted towards lower-paid roles, the employer national insurance and minimum wage increases implemented in 2025-26 have had a disproportionate impact, exacerbating margin pressure, alongside higher energy, transport and materials costs.
Further costs on the horizon: The UK carbon border adjustment mechanism will take effect on 1 January 2027, applying a carbon price to imports of aluminium, cement, fertiliser, hydrogen, iron and steel where a business imports more than £50,000 of in-scope goods. For merchants sourcing any of these materials from outside the UK, it adds another cost to plan for at a time when margins are already stretched.
Liquidity: the risks to watch
Cash is what keeps a business trading until profitability returns. It is often insufficient working capital, rather than an absence of underlying profitability, that tips otherwise viable businesses into distress.
Three risks stand out right now:
Lenders may require tighter terms or higher interest rates: A funding agreement negotiated in better years may not be renewed on the same basis if profitability has fallen and affordability is harder to evidence. Lenders are taking a more cautious approach to the sector, applying greater scrutiny.
We are seeing higher borrowing costs and more restrictive covenant packages: lower headroom on leverage or interest cover, more frequent testing, more detailed reporting requirements, and restrictions on capital expenditure and acquisitions. In some cases, lenders prefer to agree short term amendments and extensions to facilities (of around 12 months) rather than refinance for 3-5 years as in the past. Some are signalling a desire to exit altogether. These outcomes have implications for business confidence, auditor going concern assessments, trade credit insurance (see below) and, ultimately, liquidity.
Customers are paying later: Delayed payments create working capital stress that runs straight through the supply chain. When housebuilders routinely delay settling invoices, or impose terms of 90 or 120 days, that strain is pushed further downstream. The Commercial Payments Bill, introduced in May 2026, proposes to cap payment terms at 60 days and could make a significant difference, but it will bring no relief to merchants until it becomes law.
Trade credit insurance is a fragile safety net: Its use is common across the sector, but cover can be reduced or withdrawn when an insurer's view of the sector or an individual customer deteriorates. The consequences can be significant, whether it's cover on your own receivables, or cover your suppliers hold on you, which can see them ask for faster payment.
Good management information is essential
Our work in the sector has shown that the quality of management information (MI) can vary widely, yet good MI is essential not only for running the business but also securing financing on the best possible terms. It can turn liquidity from a source of anxiety into something a management team can forecast, plan and control.
A borrower that cannot produce reliable, timely figures will struggle to reassure a cautious lender or credit insurer, while one that can sends a clear signal that the business is well run.
How we can help
Our Debt & Capital Advisory, Turnaround & Restructuring and Value Creation teams work with builders’ merchants and building materials businesses, and their lenders, to secure the best possible financing.
- We actively manage existing lender relationships and/or engage new lenders to explore alternative sources of support, creating real optionality. Managing existing and new stakeholders is often a key success factor in maintaining lender relationships.
- Drawing on our deep sector experience and lender market insights we assess how best to structure facilities so that borrowers are clear on what they need and have confidence that their lender will support them.
- A transition from general purpose credit lines to a blended approach including, asset-based lending against receivables, stock, property and plant can provide real headroom while market conditions improve.
- In June 2026, Grant Thornton advised on the refinancing of existing facilities for James Donaldson Group Ltd, a specialist manufacturer and supplier of timber products, resulting in the firm raising a new multi-asset facility which aligned with the Group’s strategic and operational requirements.
- Our specialist teams advise on business operations and strategy, formulating a value creation plan to secure the business's long-term future and target returns despite market headwinds – working alongside the liquidity and financing support above.
- We help firms assess the extent to which they're likely to be caught by UK CBAM, quantify the likely cost using our own modelling tool, and work out the practical registration, record-keeping and reporting steps needed to be ready.
Early intervention matters, whether a business is dealing with short-term cash flow pressure, profitability concerns, refinancing, covenant compliance issues or wider financial and operational challenges. The options available to a business narrow as cash tightens, so advice is most valuable well before a facility matures or headroom runs out.
For more information or advice, contact our experts.
