Just 32% of new homes in England and Wales secured a buyer before they were built in 2023, the lowest level since 2013, data has shown.
This was lower than the 39% share of new homes that found a buyer before being constructed in the year prior, according to data from Hamptons.
The estate agency group attributed this to higher mortgage rates, as it suggested buyers of new homes were more likely to “disproportionately” financially stretch themselves in order to get on the property ladder.
The share of off-plan sales peaked in 2016 and reached 47%, as buyers rushed to purchase before the 3% stamp duty surcharge on second homes came in.
Hamptons said landlords had made up a “progressively smaller” share of buyers since then, but this buyer segment had fallen in each year except for 2021.
In 2023, first-time buyers outnumbered landlords two to one for off-plan sales, which was a reversal of 2016’s market.
Shift to smaller homes
Hamptons suggested that higher mortgage rates had reversed the trend of buyers seeking larger homes.
In 2023, off-plan sales for bigger homes recorded the steepest decline.
Just 22% of detached homes and 31% of semi-detached homes sold before they were built last year, representing annual respective falls of 8% and 10%.
Supporting this view, Hamptons’ analysis also showed that, for the first time since the pandemic, flats were more likely to be sold off-plan than terraced homes. In 2023, some 45% of flats were sold off-plan, which was just a 5% drop on the year before.
Regions where there were more larger homes built also recorded the sharpest fall in the share of off-plan sales.
For example, just 17% of new homes sold in the East of England were flats, compared to 95% in London.
This has led to London recording the highest share of homes bought off-plan, at 47% last year. The second-highest proportion of off-plan sales was seen in the South East, at a share of 33%.
The share of off-plan sales in London was down from 52% last year, and this was the first time since 2012 that the proportion dropped below 50%.
Harlow, where 80% of new homes were sold before they were built, recorded the highest share of off-plan sales in the country. This was followed by Hillingdon at 74% and Brent at 72%. Hamptons said developments in these areas were typically regeneration schemes in more affordable locations.
Drop in off-plan sales ‘bad news’ for housebuilders
David Fell, lead analyst at Hamptons, said: “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. This means the Government is unlikely to get close to hitting its housebuilding targets until interest rates drop back considerably and demand picks up.”
He added: “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.”
