Historically speaking, the words new build have been somewhat divisive within both consumer and intermediary circles. Supply, build quality, price premiums and access to the right kind of lending are all factors which have influenced business volumes and perceptions in the past, and are still evident in the present. With that in mind let’s take a brief look at the current state of play surrounding these ongoing issues.
Supply
The supply of affordable housing is a lengthy article in itself; however the government appears to be making some positive strides in the right direction. The ‘slimmed down’ Spring Statement saw an announcement supporting the West Midlands region in building 215,000 new homes by 2030/31. This is aided by a grant of £100 million from the Land Remediation Fund, as part of a £44bn investment programme announced in November. Meanwhile, the Housing Growth Partnership, set up to provide financial funding for small housebuilders, will be doubled to £220 million. In addition, London is set to receive £1.7bn of additional funding to deliver a further 26,000 affordable homes.
The well publicised supply gap continues to be an ongoing concern for all potential homeowners and the government. It’s clear that there are no quick fixes and this represents a constant battle for all parties in the housing chain. Although, on a positive note, this matter now appears to be higher on the government’s agenda than ever before.
Quality and premiums
Build quality is certainly a lingering issue which needs close attention and we continue to hear of all too many cases where certain developments are not up to scratch.
Premiums, whilst not quite as prominent as in times gone by, also need to be taken into consideration by buyers. The associated costs attached to new build properties must be closely compared with those of buying a ‘used’ home to get a real perspective of present and future value.
The appetite, motivations and preferences for buying a new build home in the UK were recently outlined in a New Homes Buyers 2018 report from ZPG. This revealed that buyers at different stages of life have clear, and differing, preferences for new homes. It suggested that the preference for resale homes v new-build properties was split almost equally at 36% and 37% respectively, with 27% claiming no preference. The sales process and ongoing maintenance of new-builds was seen as easier, with running costs also thought to be lower. However, new-builds were also perceived as not being built to a high-quality spec and over-priced.
The research doesn’t necessarily outline any benefits or problems lenders, intermediaries and buyers aren’t already aware, but they do help highlight what housebuilders need to consider when getting the balance right between volume, quality and price.
New build lending
At the end of 2017 the NHBC said that house builders had registered plans to start 160,606 new homes which was reported to be the highest number since the start of the financial crisis in 2007. Completions had risen to 147,278, the highest level since 2008 and the general expectation was/is for starts to rise to an even higher level in 2018.
These stats emphasise the vast number of new developments emerging all over the UK, how important it is for lenders to be tuned into these opportunities and how they can best serve potential buyers and intermediary partners. Lenders have, in the past, avoided some areas of new build lending due to a combination of a lack in appetite and portfolio risk. Thankfully, more offerings are now appearing at higher LTV levels which is great news for buyers and the sector as a whole.
So what is the reason for this?
Well, the simplest explanation is that risks attached to new build have, in general, become more manageable, although there are still regulatory and responsible lending boundaries to uphold. This has paved the way for additional flexibility within portfolios meaning more lenders can finally realise the vast potential attached to this sector.
It’s fair to say that positive government intervention and increased competition amongst housebuilders will only result in further market growth. And I expect a variety of lenders to become increasingly active within this space, therefore enabling proactive and informed intermediaries to capitalise on a raft of available opportunities in the second half of 2018 and beyond.
David Lownds is head of marketing & business development at the Hanley Economic Building Society