What the GFC has taught us about recovery in the new build sector

Following the Global Financial Crisis (GFC) in a market where home owners were reluctant to put their properties on the market, new build homes became the easiest - or in some cases the only - option for those who still had to move. A similar scenario is likely to emerge now particularly once interest rates begin to stabilise and then begin to fall in 2024 as expected.

The report also found that in 2009, after the GFC, the drop in new build transactions was proportionally less than the drop in overall market activity.

Buyers of new build homes are also less mortgage dependent than for the market as a whole, meaning they are less likely to be affected by increasing mortgage rates.

George Cardale, Savills head of UK residential development sales, says: 'We know that affordability will be most pressured for mortgage-dependent buyers, but our new homes sales data suggests that almost half (49%) of new build purchasers are buying without the need for mortgage, compared to 35% across the whole housing market.'

Cardale continues, 'We also anticipate that cash buyer numbers will be more robust next year than in other parts of the market'. The report shows cash buyer numbers falling by 14% compared to a 35% fall in the number of first time buyers. Cardale continues, 'Given the number of cash buyers in the new homes market there is again reason to believe new build transaction volumes may perform more strongly than the wider market.'

The market also behaves differently in different geographies. According to the report falls in both prices and activity levels are expected to have less of an impact in the North West, Yorkshire & Humber and the North East. Emily Williams, Savills research director, says: 'Buyers in these markets are less stretched due to lower house price to income ratio than those in London and the South East and are more able to weather mortgage rate rises.'

Williams continues: ' This is important as overall delivery in these regions is more dependent on open market sales.'

What could fill the gap after Help to Buy?

The 2021-2026 Affordable Homes Program and the expansion of Build to Rent would be critical to filling the gap left by the end of Help to Buy. In 2010-11 as private housebuilders were recapitalizing Housing Associations almost doubled their all market and affordable completions (from 23% in 2007-8 to 43%)

Emily Williams, says, 'We anticipate that demand for Shared Ownership over the next two years will remain relatively strong, with particular appeal to First Time Buyers who find their budgets curtailed by rising mortgage costs.

As asking rents have increased by 12% over the past 12 months First Time Buyers may no longer wish to remain in the private rented sector. Paying the rent of 2.75% on the unowned share of a property will be much more affordable than servicing a mortgage at rates of 6%.

We know there is significant underlying investor appetite for residential housing - in previous completions forecasts we expected Build to Rent delivery of both multi-family and single family homes to reach 30,000 per year by 2025 - up from a current pipeline of only 20,000, but still well below the 87,000 single family units that investors have collectively stated aspirations for.

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