George Cardale, Savills UK Head of Residential Development Sales argues that cautious optimism is returning to the UK new home market.
Despite ongoing political uncertainty Savills latest Market in Minutes report reveals a significant increase in buyer confidence in the new homes market during the first quarter of 2019. Realistically priced properties attracted particular interest and as a result the level of viewings and new applicants rose considerably.
At a national level, Savills viewings and new applicants for new build homes grew by 35% and 31% respectively in Q1 2019, compared with the same period in 2018. This jump in new build buyer interest has been spread across the country, but has not been universal. Areas which have seen a particular up-tick include London and markets in its commuter belt, as well as Glasgow and Edinburgh.
Buoyancy in buyer interest has returned to some markets as a result of Brexit fatigue, with buyers responding to realistic pricing and sales incentives in a needs-driven market. Indeed, according to the Home Builders Federation survey, new build buyer confidence is at its highest since June 2017, moving from being the second biggest constraint on development in Q4 2018, to the ninth biggest constraint (out of 15) in Q1 2019.
Net reservations on new build sites were also up. The annual balance of opinion jumped from -28% to 18% between February and March 2019. Housebuilders have remained optimistic that sales rates will rise.
There is widespread recognition that Brexit is unlikely to be resolved soon and needs-based buying decisions can’t be delayed indefinitely. The extended deadline of 31 October appears to have released some pent-up buyer demand, providing the market with greater confidence.
Although the bounce-back in sentiment is positive, it is not necessarily a signal for rising prices, and the greatest interest and activity has been in locations which have seen realistic price adjustments.
According to Nationwide, annual UK house price growth was just 0.8% in May. Price corrections in London have started to ripple out to the South East, suggesting that this slowing in prices is not a temporary trend. However, regional house price growth continues to defy the ongoing uncertainty. Prices in the year to March grew by 4.8% in the West Midlands, 4.5% in the East Midlands and 4.4% in Scotland.
The greatest changes in new build buyer activity appear to be the result of two drivers; firstly where price growth remains steady and houses are relatively affordable, for example Scotland; and second, where price corrections have provided opportunities for buyers, as is the case in London and the South East. Overall the market continues to be price sensitive and in order to maintain or increase transactional activity, pricing needs to be pragmatic.
Whilst transaction volumes have remained relatively flat, with national transactions falling by 0.5% in March, according to HM Land Registry, mortgage approvals are up. According to UK Finance, in April 2019 the number of mortgage approvals rose by 8.6% compared with the same month last year.
In terms of who is buying, UK Finance figures reveal that first time buyer transactions overtook home movers in November 2018 and have continued to grow. This growth has been fuelled by Help to Buy, cheap mortgage rates, price reductions in some markets and other sales incentives.