Zuneth Sattar: Demand for UK Newbuilds Increases by 66%

Market analysis suggests that interest in newbuild properties bounced back in 2020, recovering to a higher level than before the start of the COVID-19 pandemic.

Demand for new homes leapt following the reopening of the housing market, surpassing pre-lockdown levels. Persimmon Homes, a leading homebuilder in the UK, reported a 215% month-on-month surge in demand via Zoopla buyer leads.

The newbuild sector’s recovery drastically outpaces demand for older properties, which stands at 46% higher than pre-lockdown levels. Demand for newbuild properties is strongest with first-time buyers, increasing by 87% compared with lockdown levels.

As those in the industry – such as Zuneth Sattar, Director of Xaviar Investments Limited – will be aware, the newbuild market had rebounded rapidly despite the housing sector undergoing unprecedented disruption. Industry experts suggest that the newbuild market’s resilience may be attributed to two factors.

First, newbuild developers are experienced in offering virtual viewings and selling off-plan, meaning they were able to sustain demand even during lockdown.

Second, the Help to Buy scheme buoyed the market, since it can only be used to purchase newbuild properties. With many lenders withdrawing 90% and 95% loan-to-value mortgages in response to the COVID-19 crisis, more first-time buyers turned to the scheme to help them get onto the property ladder. Under the Help to Buy scheme, first-time buyers receive a five-year interest free loan worth up to 20% of the property’s value to top up their 5% deposit.

According to Zoopla, the North East has experienced the strongest surge in demand, with interest in newbuilds increasing by 139% since the end of lockdown. With a rebound of 121%, the West Midlands was not far behind, followed by the East Midlands with a 108% increase.

In the six weeks preceding the 21st June 2020, Wales reported a 74% increase in demand, even though the market remained closed until the 22nd June 2020. Meanwhile, a 33% increase was reported in Scotland, despite the market remaining closed until the 29th June 2020.

Often described as the housing market’s lifeblood, first-time buyers have predominantly fed this trend. Market analysts anticipate continued demand for newbuilds from first-time buyers, with many more predicted to use the Help to Buy scheme following withdrawal of many loan-to-value mortgages.

Boris Johnson recently announced government plans to build more than 180,000 affordable homes. He also unveiled changes to the planning system to simplify the process of demolishing derelict buildings, freeing land for construction of residential properties. Furthermore, the new legislation will make it easier for property owners to convert existing commercial premises into homes, as well as creating a new fast-track approval process for homeowners to build additional space above their homes.

As well as proving popular with first-time buyers, newbuilds also appeal to many buy-to-let investors, since their improved energy efficiency makes them cheaper to maintain. Historic housing stock needs frequent refurbishment and renovations, for example a new boiler, bathroom, kitchen, plumbing, heating, electrics, or even a new roof. These significant expenditures all reduce profit. Many buy-to-let investors are drawn to newbuilds since they are generally cheaper to buy and eliminate the need for many substantial outlays, at least in the short-term.

Over the past 10 years, the number of new homes built annually across the UK has risen by over 80%. A report published in early 2020 by Stone Real Estate revealed that 203,900 new build homes were built across the UK in 2019. With an average price of £282,253 for a newbuild, this equates to £57 billion in new homes. The most valuable region to build in was the South East, where completed newbuild transactions totalled more than £12 billion.

England saw the highest number of newbuild properties, with more than 169,000 constructed in 2019. At an average cost of £302,642, this equated to over £51 billion in new homes.

Wales saw the lowest number of newbuilds in the same year, with 5,780 new properties garnering a total value of over £1.2 billion.

Against a backdrop of political turbulence and slowed house price growth, UK housebuilders continued to deliver an impressive amount of stock to the market in 2019. In spite of significant disruption caused by COVID-19, demand for newbuilds bounced back in 2020, surpassing pre-lockdown levels. Thanks largely to the UK government’s Help to Buy scheme, this trend looks set to continue for some time to come.

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