New dawn for new build

The new build housing market has maintained high sales rates, and transaction volumes are growing. In an otherwise uncertain political environment, the Government has placed new housing delivery at the top of its agenda through the Housing White Paper. There are opportunities for developers who can pinpoint pressure points in the market and respond flexibly to buyers’ needs.

Help to Buy has been the central pillar of government support for new housing delivery. It has helped to encourage higher sales volumes and faster build-out rates by ensuring a buoyant new build and first-time buyer market. This is at a time when mortgage availability has been increasingly constrained, following the Mortgage Market Review in 2014.

Historically, the ratio between transactions of new build and secondhand has been stable at around 10.4. However, following the introduction of Help to Buy and the Mortgage Market Review, the relative delivery of new homes has increased sharply to 8.7.

We predict that new homes will continue to form this higher proportion of overall sales as long as the Government continues to support the sector.

^{Source: Savills Research using Land Registry}

Demand for new build

Between 2014 and 2016, new build transactions between £500,000 and £600,000 (the cap for Help to Buy) more than doubled. Yet, growth in transactions over the Help to Buy cap was 12% between 2015 and 2016, compared with 31% the previous year. It is in the mid-market that transaction growth has remained strongest.

Buyers of new build property are increasingly pushing up against the limits of what they can borrow, while increased stamp duty for properties of more than £925,000 has made moving far more expensive.

In particular, the prime markets have been struck by uncertainty following the EU referendum. With investors making up 28% of buyers in the prime new build market, it is more exposed to changes in the buy-to-let sector, such as the 3% stamp duty surcharge, further mortgage regulation, and the restriction of tax relief on interest payments.

The withdrawal of buy-to-let investors is likely to decrease sales rates and the proportion of off-plan sales that are used to fund schemes, as more owner-occupiers look for completion within 12 months. But in some markets this has been offset by international investor sales.

^{Source: Savills Research using Land Registry}

Help to Buy increasingly popular

Help to Buy is crucial for the growth of the new build market and its popularity is increasing. The number of Help to Buy Equity Loan sales almost doubled in the year to March 2017, compared with the year to March 2014, and underpins demand in the new build market from younger buyers struggling to get on the housing ladder.

For the prime market, it is a case of understanding where there is capacity for Help to Buy at a price point that is affordable for first-time buyers (who make up most users at 81%), but which is also below the scheme’s £600,000 cap.

Developers have an opportunity to adapt with the market, which may mean reaching into new price points or other models, such as Build to Rent, downsizing, and retirement living.

In 'New build buyer profiles', we examine the requirements of buyer types in the prime new build market, and consider what these mean for developers in terms of maximising demand in a slower sales market.