First time buyers shun new builds after Government axes Help to Buy

first time buyers shun new builds after government axes help to buy

new homes

The number of people buying properties before they have been built has slumped to its lowest level in more than a decade amid higher mortgage rates and a lack of government help for first-time buyers.

Higher interest rates have driven first-time buyers out of the new-build market, experts said, with people now more likely to buy second-hand homes which are “smaller and more affordable”.

The decline comes a year after the Government called time on its flagship Help To Buy scheme and almost a decade on from a new stamp duty surcharge for landlords.

Research by estate agency Hamptons shows that only 32pc of new homes sold in England and Wales were bought before completion – compared to almost half eight years ago.

Purchasing off-plan usually involves buyers visiting a show home or sales suite and reserving a plot based on marketing materials and floor plans.

Homemovers have also been put off, with only 22pc of detached homes and 31pc of semi-detached homes sold before they were built in 2023.

The share of new homes sold off-plan peaked at 47pc in 2016, buoyed by investors rushing to beat the 3pc stamp duty second home surcharge.

Since then, landlords have made up a progressively smaller share of purchasers, and the share of new homes sold off-plan has fallen in all but one year (2021) since.

Interest from British and overseas buy-to-let investors continues to wane amid uncertainty over rental reforms and recent tax relief cuts.

According to Hamptons, for the first time since the pandemic, flats are now more likely to be sold off-plan than terraced houses.

Rico Wojtulewicz, spokesman for trade body the National Federation of Housebuilders, said there has “absolutely” been a reduction in off-plan transactions.

“The sales are down and that is a real problem for the big developers. The buying process is so slow.”

Mr Wojtulewicz added: “Large sites really need those quickfire off-plan sales to be able to move onto the next phase of the development, so it hurts them.”

David Fell, of estate agency Hamptons, said higher mortgage rates have dampened sales.

“Higher mortgage rates have introduced a new barrier in the form of unaffordable repayments and have pushed buyers towards smaller, more affordable homes that are often second-hand,” he said.

Mr Fell added that housebuilders have responded to the drop in off-plan interest by slowing their build rates. Major housebuilder Persimmon, for example, reduced its output by 33pc last year.

“Off-plan sales are the foundation of most housebuilders’ businesses – selling fewer homes before they’re built is bad news for their bottom line,” he said.

“In what’s a cash-intensive business, housebuilders typically borrow to build homes, paying it back when they’re sold. But with more homes only sold after they’re finished, it means developers are borrowing money for longer and at higher interest rates.

“With off-plan sales harder to come by, housebuilders have responded by slowing build rates to preserve capital and ensure they’re not left with large numbers of unsold finished homes.”

The East of England is the region with the lowest off-plan demand, with only 25pc of new-builds bought before completion.

At the other end of the scale, London has recemented itself as the country’s off-plan capital, with 47pc of homes sold before completion. But the figure is still the lowest it has been since 2012.

A key factor fuelling new-build purchases in recent years was the Help to Buy equity loan scheme, which helped 350,000 people onto the housing ladder.

It allowed first-time buyers to purchase a new-build home with a 5pc deposit and a 20pc Government-backed equity loan, or 40pc for those buying in London, but the scheme closed to new applicants in October 2022.

Fifteen-year mortgage rates also played a major role in dampening new-build interest, with buyers reluctant to take on a loan. The average two-year fix peaked at 6.85pc last August, but now stands at 5.91pc, according to Moneyfacts.

New-builds also typically command higher prices. The average new build premium last year was 13pc, according to PropertyData.

In February, the Competition and Markets Authority (CMA) launched a review into the house building sector over concerns firms had shared commercially sensitive information.

The list of criticisms directed towards developers was wide-ranging – the CMA attacked shoddily built properties, excessive fees and inescapable management schemes.

The CMA stressed that a more structural overhaul of the sector is needed – which is something the regulator cannot achieve alone.

The bottom line, the CMA said, is that too few homes are being built – particularly in places where they are needed most.

But Mr Fell said: “The Government is unlikely to get close to hitting its house-building targets until interest rates drop back considerably and demand picks up.”

Last year, Britain built 234,000 new homes, a figure well below the Government’s 300,000 per year target.

Outgoing housing secretary Michael Gove watered down those housing targets last year by making the figure advisory rather than compulsory.

The Department for Levelling up was approached for comment.

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