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5 current trends affecting the new homes industry

Row of UK houses

Article posted by Adriana Bucur on Sep 01, 2021

The world has turned upside down for many over the last 18 months, and it’s been no different for developers, housebuilders and the rest of the new homes industry. COVID has obviously had a huge impact on the sector, but beyond that, there are a number of other key trends which are keeping everyone on their toes.

We take a look at the 5 current trends affecting the residential new homes industry.

1. Materials and labour feeling the pressure of Brexit & COVID

Developers and housebuilders are being hit hard with the cost of raw materials right now. The UK imports many of its building materials, and thanks to the perfect storm of the pandemic and Brexit, there are severe shortages of essential building supplies, with many being held up getting into the UK. As a result, the price of everything is up right now. Demand for timber, bricks and steel, in particular, has sent costs soaring. Brexit has of course led to delays at customs and the pandemic has caused delays in the supply chain globally, not to mention soaring demand for goods as economies reopen and building activity ramps up again.

There is also a shortage of workers in the sector right now. While construction has always experienced this, the problem is now far more acute than it was, with many of the European workers having gone home due to the pandemic or now unable to get Visas. Growth at its current pace will certainly be unlikely to carry on for the new homes sector with the double whammy of high costs and a shortage of skilled staff.

2 . Stamp duty holiday blues

The stamp duty holiday certainly led to a bit of a buying frenzy and significantly increased house prices as a result. While it might have been credited by some with reviving the housing market, after the first lockdown it caused a huge slump in activity, others have criticised it for ‘turbo charging’ the market and making getting onto the housing ladder even more unaffordable for many first-time buyers.

With deadlines to the holiday looming in June, there was significant pressure on developers and housebuilders to deliver and complete homes in time, causing a flurry of activity for all involved in the process. However, with the holiday now over, we’re now seeing that some haven’t yet caught up with their build programmes (which has been further impacted by the materials and labour shortages) and some lack land with planning permission on which to build. Will it cause potential supply issues down the line? Only time will tell. However, for those that have not been negatively affected, they have been continuing to ride the wave and incentivising customers to keep buying by offering to pay their stamp duty for them.

3. Help to Buy scheme extended

In some mixed news for the property industry, the government-backed 'Help to Buy scheme' has been extended, albeit it is now only for first-time buyers. Previously any buyer who did not own property was eligible for the Help to Buy scheme, plus there are a few other changes to the scheme relating to joint purchases and regional caps on the amount of loan you can receive.

While it’s good news that the scheme remains in place for those first-time buyers, ultimately fewer people will now qualify and will therefore have to save for longer or compromise on certain aspects of their ideal home so they can afford to buy. With the price of homes at record levels thanks to the post-pandemic property boom, many in the industry will be a little disheartened that the scheme won’t help as many people as it previously did, making it harder for people to buy homes. For developers and housebuilders, it is also likely to lead to more necessary qualifying of buyers ahead of starting a sale process.

4. Tax on land banking

There is much talk about land banking and whether it’s a pipeline strategy for developers and housebuilders to ensure they have enough development plots in place for when the time is right, or if they might be sitting on land to control the supply of houses coming to market, ensuring prices are kept higher. Either way, land banking is common practice, with some sitting on land (which can be a mixture of land with or without planning permission) for up to 10 years. And the reality is that in the UK we have a severe housing shortage: over the last 10 years, it’s estimated that 2.5 million homes have been given planning permission, but only 1.5m have been built. That translates to 1 million unbuilt homes. Wow!

So, the government is keen to do something about this and get things moving. There are now talks of a “use it or lose it” tax being introduced for those who fail to build homes on land that already has planning permission. This has the potential to be a significant cost, especially for those who have large banks of land. Housebuilders and developers, as expected, have not received the news well and are fully opposing this. However, there could be benefits of this land tax - it will lead to lower prices with a greater supply of homes and increase the build programme across a country that is currently experiencing a housing shortage.

5. Government introduces mortgage guarantee scheme

95% mortgages are back! Great news for those struggling to raise deposits for ever-more expensive homes and get themselves onto the housing ladder. Of course, 95% of mortgages used to be widely available with most lenders before the pandemic, but many (including 90% LTV mortgages) disappeared from the market rapidly with the uncertainty caused by COVID. However, they are now slowly returning thanks to a new government scheme that offers financial guarantees to lenders.

The difference this can make to buyers is huge – if you had to wait another year to save an additional 5% deposit, the price of property would likely have also gone up in that time, meaning a higher deposit is needed! Some lenders are still nervous about them, and as a result interest rates are higher than pre-pandemic levels for the same products. While they are a more expensive option for borrowers, hopefully, it will help to keep stimulating the new homes market in addition to some of the other schemes on offer (such as the Help to Buy)

We work with housebuilders, developers and managing agents to help them source the best talent in the market. We can help with your recruitment plans or finding the next step in your career. To arrange an initial conversation, please email me.

Article written by Adriana Bucur, Senior Consultant - New Homes.