There is a fundamental underpinning the UK housing market and how it progresses, and of course that’s supply and demand.
It’s perhaps no surprise that over the last three decades or so, a considerable amount of energy has been expounded on upping the former in order to cope with the latter – to this date, I’m not sure any Government of any political persuasion, has managed to do this successfully. Indeed, in some of the years between 1990 and 2019, the attempts to build more homes have appeared utterly woeful.
Given this backdrop, it was not surprising to see so much focus on new house-building plans by the political parties in the lead up to December’s General Election. Of course, the only one that matters now is what the Conservatives plan to do over the next five years – for what it’s worth, their manifesto suggested they would be able to secure the completion of 300,000 new-build homes by the middle of this decade.
This is the target, however the path to such a figure every single year is not going to be smooth. For a start, the principal scheme which has been utilised over the past few years in order to build (and sell) new-build homes has been the Help to Buy Scheme. Next year, this becomes a first-time buyer-only scheme and in 2023 it is destined to be closed down for good.
Will the market itself be able to make up the deficit that Help to Buy will leave behind? There’s no doubting that the principal home-builders/developers have done particularly well out of Help to Buy since its inception; given that we have tended to put a significant number of our eggs in the private route to housing supply, how might they react when the scheme is changed and then closed?
Plus, we have to ask: how realistic is that 300,000 figure? Latest Government data for 2018/19 shows that additions to the UK housing supply topped 241,000 during that period, some way off the Government’s 300,000 target, and that’s with the Help to Buy scheme running and being available to all kinds of purchasers, not just first-time buyers.
Planning consent for properties in England actually dropped in the year to September 2019, down to 365,200 from 377,700 in the previous 12-month period. And, of course, there is absolutely no guarantee that this number of consents get turned into new properties anyway. Far from it.
So, there clearly are some major challenges still to be overcome by the Government in getting the number of new homes up to the ‘magic’ 300,000 mark. One suspects that this would merely be a ‘standing still’ figure anyway, given that (by most estimates) the UK has needed at least 250k new homes every single year since the start of the 2000s. Needless to say those figures have not been met and there is a considerable deficit.
There’s no denying that Help to Buy has appeared to have ‘done a job’ since its launch, and has married up the appetite for new homes, with new buyers and their lending needs. As supply (hopefully) does grow, one of the areas we have been involved in is ensuring lenders are not overly at risk when it comes to their new-build lending books.
For many lenders active in this space, this is not a bottomless pit, in terms of the provision of finance to new-build buyers, plus given it tends to be a very separate market from ‘second-hand properties’, they need to be aware of their risk exposure at any given time, drilling down to what they are working with at both regional and individual site level. Plus, let’s not forget there are different ways of constructing homes – some non-traditional – and again lenders need to understand what their exposure is here, and the growing number of requirements that come with new-build activity.
Overall, there’s no doubting that greater levels of supply are going to be required year-on-year for a long time to come. Understanding where these new-build developments sit within the market, in particular how lenders can use services like SDL Surveying’s risk exposure tools, means that we can square the circle in terms of the numbers, and how borrowers get access to lending in order to buy them. As with everything in the UK housing market, this is all inter-linked and having full information can allow us to develop the next generation of new-builds and new owners.
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