The share of new homes being sold before they’re built has dropped to decade low as higher mortgage rates continue to squeeze sales, Hamptons’ annual off-plan sales index reveals.
Almost a third (32%) of new homes sold in England and Wales last year found a buyer before they were built – the lowest level since 2013. And for the first time since 2012 fewer than half of new homes sold in London last year had been bought off-plan.
HIGHER MORTGAGE RATES
Hamptons’ data reveals higher mortgage rates have squeezed new home buyers harder than most, given they are disproportionately likely to be stretching themselves to buy their first home or borrowing more to trade up. Larger homes recorded the sharpest falls in off-plan sales, pulling down the share of homes sold before completion from 39% last year as the chart shows.
But flats continue to dominate the off-plan sector, with just under half (45%) more likely to be sold before completion than terraced houses, led by more first-time buyers alongside a decrease in the number of flats built last year.
BOTTOM LINE
David Fell, Lead Analyst at Hamptons, says: “Off-plan sales are the foundation of most housebuilders’ businesses. This means selling fewer homes before they’re built is bad news for their bottom line.
“In what’s a cash-intensive business, housebuilders typically borrow to build homes, paying it back when they’re sold. But with more homes only sold after they’re finished, it means developers are borrowing money for longer and at higher interest rates.
“With off-plan sales harder to come by, housebuilders have responded by slowing build rates to preserve capital and ensure they’re not left with large numbers of unsold finished homes.”
MAGIC BULLETT
And he adds: “In a world of low-interest rates, incentives that cut the size of the deposit were the magic bullet to help buyers into homeownership.
“Even buyers with a 5% or 10% deposit found mortgage repayments were much cheaper than renting a similar home. But higher mortgage rates have introduced a new barrier in the form of unaffordable repayments and have pushed buyers towards smaller, more affordable homes that are often second-hand.”
