There is strong demand for housing with more buyers in the market than sellers and this applies not only to second-hand homes but also to new build properties.
John Doughty is financial services director of the new-build division at Just Mortgages
There is strong demand for housing with more buyers in the market than sellers and this applies not only to second-hand homes but also to new build properties.
COVID-19 has caused disruption to the new build sector since 2020 causing building delays, particularly when there were lockdowns and work on sites had to stop.
Throw into the mix the shortage of materials and labour, which has led to higher costs, and the result is a limited supply of new homes coming to market.
Although the situation has been improving there are still supply issues with both materials and labour and this will continue to impact on the new build sector this year.
Nevertheless, the appetite among buyers for new-build homes is high and many developers are forward selling their properties. Buying off plan accounted for 33% of new builds in 2020, according to Hamptons, but it would not surprise me to see a higher figure for 2021.
People have been keen to secure their home purchase in the light of low housing supply and high demand.
Buying off plan also secures the property at today’s price rather than the value when the build is complete, which will invariable have risen in the current climate. The latest figures from the Office for National Statistics (ONS) show annual house prices rose by 10% in November 2021.
Help to Buy coming to an end
Just before COVID struck at the start of 2020, the UK was building more new homes than the previous peak of 2007/08, in part due to the success of the Help to Buy (HTB) scheme.
From 1 April 2013 to 30 June 2021, 339,347 properties were bought with a HTB equity loan with 83% of completions by first-time buyers.
However, the scheme changed in April 2021 limiting access to first-time buyers only and regional price caps were introduced so less people and properties are eligible.
March 2023 brings an end to HTB, which will leave a big gap in the new build buyers’ market, so what, if anything, will fill it?
We are already seeing private firms coming in with equity loan schemes, working along similar lines to HTB where the buyer only needs a 5% deposit.
A 20% equity loan is provided by private equity rather than the government, with the other 75% via a mortgage. Examples include Proportunity, catering for both new build and second hand properties, and Market Mortgage which concentrates on new-builds.
Rise in shared ownership
As a new build mortgage brokerage we have understandably been getting less mortgage enquiries for HTB but are seeing much more interest in shared ownership. Many housing associations have building programmes and the opportunities for new shared ownership properties are expanding.
Government figures estimate that in 2020-21, private enterprise accounted for 78% of new homes – including both private sale and private renting - housing associations built 20% and local authorities 2%.
So, one in five new build homes are being built by housing associations to be used not just for social renting but also for shared ownership.
Shared ownership is good way for first-time buyers to take a first step onto part of the property ladder but it is also open to second homeowners.
New government schemes
Deposit Unlock
Another 95% LTV scheme is Deposit Unlock, which is available on selected new build sites for both first-time buyers and current homeowners.
So far only two lenders, Newcastle and Nationwide, have committed to it but I expect more lenders will get on board during the year. There are at least 17 housing developers signed up to Deposit Unlock and as other lenders join it should open up the scheme to more potential homeowners.
First Homes
First Homes is another new government initiative aimed at local first-time buyers and key workers who can buy a home with a 30% discount.
A programme of 1,500 First Homes is being rolled out over the next two years in over 100 locations across England. The numbers of homes being built is expected to increase as developers and local authorities begin to incorporate new planning policies.
Energy efficient homes
Climate change is a hot topic and as property produces large amounts of greenhouse gases, new build properties have a huge part to play. The government has said it wants all properties to have an EPC rating of C by 2035 and most new builds these days are built to a B rating.
Developers are building energy efficient homes and buyers can get a discounted mortgage rate if their property is rated between A and C. It’s early days but I think we will see more lenders offering this type of incentive. As brokers we have a part to play here to inform our clients that they can take a lower mortgage rate when buying an energy efficient home.
In conclusion, I believe buyer demand will remain strong and the appeal of fresh new homes is still very much there, but how much will this be dampened by the availability of stock?
