After a steady increase in mortgage rates during the first half of 2023, concerns about house prices rose too.
Then in October, the Financial Times reported that UK house prices have fallen 2.8 per cent in nominal terms since their peak in March 2022, a considerable 13.4 per cent in real terms. Predictions for further drops range from 2-3% year-on-year (Zoopla) to a fall of 35% over three years (BestAgent).
When we presented our half-yearly sales statistics, I was able to show sales on over 150 plots in Q2 2023, which was comparable with Q2 2022. We also added 21 new developments to the pipeline which it is anticipated will launch later this year.
Developers selling new homes have a variety of tools available to them for incentivising sales. For example, our clients are offering to assist with moving costs, contributing towards stamp duty and mortgage payments, and also providing property inclusions such as carpets, free specification upgrades and landscaping.
With an increased likelihood of chains falling through, developers’ ability to offer part exchange as a means of completing chains is more valuable in today’s market than ever. Our Corporate Sales division, which specialises in the resale of part exchange properties, saw substantially increased demand, with the number of valuations in July up 160% year-on-year.
It is also worth noting that the number of cancelled sales is 20% lower than in 2022: the current market is one for the serious buyer/seller (the ‘need to move’ rather than the ‘want to move’) and as such there is more certainty when embarking on a property transaction.
The increase in the cost of fuel has undoubtedly benefited new home sales, due to their substantially increased energy efficiency. According to the Home Builders Federation, an average new-build property could save the homeowner over £3,000 per year for a house or just under £1,400 for a flat.
It’s important to take into account the running costs over a five year period, as newbuild properties generally have high energy performance ratings. This means that utility bills are likely to be cheaper and occupiers avoid the need for any major upgrades, such as a new boiler or roof.
Interestingly the most negative impact on new home sales is not financial, but political: the end of Help to Buy in December 2022 has had a significant impact on first-time buyers accessing the market. Previously, Help to Buy accounted for almost 60% of our new home sales. We have recently been involved in a pilot of the First Homes scheme which is an alternative option for first-time buyers.
My initial view of the scheme, however, is that there seems to be quite a bit of the unknown from local authorities about the logistics of the scheme. It has the potential to be a great option but without the significant PR and marketing that accompanied Help to Buy, it could take some time before buyers are fully aware of the scheme and the logistics of the scheme ironed out.
Unsurprisingly, our shared ownership team has seen a huge uplift in applicant registrations and the demand for shared ownership properties continues to considerably outweigh the supply. There is a very discernible shift in perceptions of shared ownership properties and in the absence of Help to Buy, shared ownership provides the best means of entering the property market for many.
LRG’s strongly held view is that there is no one single property market: the industry is made up of many contrasting elements which respond differently to different market conditions. And the current economic climate makes that abundantly clear.
