Pulling out all the stops to entice first-time buyers
As increased mortgage rates threaten the home-owning hopes of first-time buyers (FTBs), we are seeing new-build developers pull out all of the stops in a bid to tempt them into signing on the dotted line.
Developers once offered an upgraded kitchen or bathroom to seal the deal but more recent incentive disclosure forms offer a glimpse into some of the challenges buyers and builders currently face.
In some instances, prospective new-build buyers can now take their pick between having their deposit paid in full or living mortgage-free for the first twelve months; and in some cases, help with moving costs and new flooring thrown in as well.
Does the market value exceed the actual worth?
It is difficult – if not unheard of – for house builders to reduce the prices on a development once they have already sold a portion. Ideally, what happens in a buoyant market is they would like to see them go up by the time those in the last stage of the development come to market.
The reality in today’s setting however is that some new-build houses are worth less than they are on the market for – they are just incentivising the difference.
The impact of the cost of living crisis is becoming ever-more apparent
Housebuilder Bellway is the latest developer to sound the alarm over the impact rising rates and the cost of living crisis is having on its pipeline. Its June trading update revealed that between 1st February and 4th June, its overall reservation rate was down 24.9% on the equivalent period in 2022.
Its forward order book consists of 6,172 homes – down from last year’s 8,152. It is however on track to deliver around 11,000 homes this year, a fall of only 198 on last year, with the average selling price expected to be around £300,000 – only slightly below last year’s £314,399.
The house builder said its overall headline pricing had remained robust across its regions but it was continuing to use “targeted incentives in some instances to secure reservations”.
Reduced investment shows signs of an uncertain market
Perhaps the most telling figure is the number of plots it has acquired since 1st August 2022. At 4,342, this figure is in stark contrast to the 13,496 it bought during the same period the previous year. It cited the strength of its land bank and its ongoing cautious approach towards land investment in the current uncertain market for the reduction.
It also revealed its decision to not proceed with the purchase of 886 plots across four previously approved sites. Unsurprisingly, it said while customers were adapting to higher mortgage costs, the recent expiry of Help-to-Buy (H2B) in England has led to lower year‐on‐year demand from FTBs. In addition, there remains a relative lack of affordable higher loan‐to‐value mortgage products.
Political manoeuvres present further blocks to housing
We also continue to see stories about Michael Gove, the secretary of state for Levelling Up, Housing and Communities, making life harder for developers and blocking schemes on design grounds.
He hit the headlines in April when he made the controversial decision to block a 165-home Berkeley Homes scheme in an area of outstanding natural beauty, after he reportedly found the scheme to be “too generic” in nature.
If reports are to be believed, Gove also plans on wielding his power and potentially blocking other developments on similar grounds. The recent media coverage about the potential destruction of some new-builds due to inadequate foundations may also not have helped developers’ cause.
Housebuilders are feeling the strain from all corners and it surely will not be long before we see them retreat further, building fewer houses and holding onto the land until conditions improve.
Is the housing crisis becoming an escalating threat?
While we have seen demand for second-hand stock hold steady in recent months, the new-build sector has always been a market in its own right and without a steady influx of FTBs, we will most likely see it wind down further.
None of which will be good for FTBs, who have just started to see some targeted help from lenders in the absence of H2B – such as Skipton’s 100% LTV mortgage for renters.
The phrase ‘housing crisis’ has become so embedded in our vocabulary that in some ways it has created less of an urgency in trying to solve it. While much of the media focus remains on the short-term issues surrounding the mortgage and housing market, we must also look to the longer-term.
Much of what is happening in the new-build market today will not be felt for a number of years, as the houses not being built today will be missing from stock further down the line – which, I’m afraid, is only storing up additional problems for the future. As always, the best time to act is normally yesterday.
Simon Jackson is Managing Director SDL Surveying
First Published with The Intermediary
References;
https://www.bellwayplc.co.uk/media/2338/13-06-2023-trading_update.pdf