Historically speaking, some lenders have avoided new build due to a lack of appetite and portfolio risk. Others have dipped their toes into the water by adopting a stricter approach and additional caution, especially at the higher LTV lending brackets. Leasehold properties have been a no-go for other providers and any incentives offered by developers also tended to muddy the waters from a lending perspective. Then there are the guarantees, off-plan purchases and, last but not least, the new build premium.
As the market has progressed, the perceived risks attached to new build properties have softened, although regulatory and responsible lending boundaries remain evident. This has resulted in further momentum and, with the drive to increase housebuilding numbers a priority for policymakers, new build is likely to play an increasingly significant role within the wider mortgage market for a host of buyers moving forward.
From our perspective, we’re seeing more landlords carefully assessing the pros and cons of new builds with an eye to an energy-efficient future. By this I mean in light of the government’s initial plan to enforce a compulsory energy performance certificate rating of 'C' on new tenancies by December 2025, and on all rented properties by December 2028. Although this is yet to be set in stone.
This plan has resulted in a huge amount of talk about how much existing upgrades may cost and with the bulk of portfolios containing large levels of older property types, landlords have to take these potential costs into account and especially so if adding to them. Given that new builds are constructed with energy efficiency in mind, most will come with an EPC rating of B and complete with future considerations in place such as electric car charging points and heat pumps.
Price and volume of sales are key elements in any potential borrowing equation. With that in mind, a recent analysis of the new-build market by Warwick Estates revealed that Britain’s average new-build house price has increased by 22.1% over the past year. The biggest regional price increases have been reported in Wales (28.1%), the South West (24.9%), Scotland (24.6%), and the East of England (24%).
However, in the same timeframe, the total value of Britain’s new-build sales has decreased by -75%, now sitting at just £1.4 billion compared to 2021’s figure of £5.6 billion. This is due to a national drop of -80% in the number of new-build transactions over the past year, falling from 17,223 in 2021 to 3,497 in 2022.
I suspect that these figures reflect heavily on a lack of supply from a construction industry which has faced its own unique set of challenges in recent times, rather than demand. There is no quick fix to bridging this supply gap and new build will remain a complex area as many considerations need to be taken into account on many different levels. That doesn’t detract from its potential but does demonstrate just how important the advice process is in such a transaction for all borrowers.
