The dream of owning a new home before it’s even built has dimmed considerably for many in England and Wales. The latest report from Hamptons reveals a decline in the sale of new homes off-plan, hitting the lowest level since 2013. This downturn, significantly influenced by soaring mortgage rates, marks a troubling trend for potential homebuyers and the housing industry.
Off-plan sales, where buyers commit to purchasing a home before its construction is completed, have traditionally been a staple in the property market, especially in bustling areas like London. However, last year’s figures paint a different picture. Only 32% of new homes found buyers in this manner—the lowest percentage in nearly a decade. Even more concerning is the situation in London, where for the first time since 2012, less than half of the new homes sold were bought off-plan.
The Impact of Mortgage Rates
The primary culprit behind this slowdown appears to be the rise in mortgage rates. Higher borrowing costs have disproportionately affected new home buyers, many of whom are first-time purchasers or those looking to move into larger homes. The data indicates that larger homes have seen the most significant drop in off-plan sales, a trend that suggests buyers are increasingly cautious about taking on larger loans under current economic conditions.
Persistent Popularity of Flats
Despite the overall downturn, flats have remained relatively popular in the off-plan sector, with nearly half of these properties still being sold before completion. This trend is supported by a steady stream of first-time buyers and a reduction in the number of new flats being constructed, which may have maintained some level of demand relative to supply.
The Builders’ Burden
David Fell, Lead Analyst at Hamptons, describes the broader implications of this shift for housebuilders. The decrease in off-plan sales poses significant challenges for developers, who rely heavily on these transactions for their financial health. In a sector where upfront capital is crucial, developers are forced to borrow more for extended periods due to the slower sales pace, exacerbating their costs as interest rates climb.
To adapt, many builders have slowed their construction rates. This cautious approach helps conserve capital and avoids the risk of being left with a surplus of unsold, completed homes—something no developer wants in an already softening market.
The shift in market dynamics has profound implications for potential homebuyers. In past years, low-interest rates made home purchases more accessible, with incentives like smaller required deposits making mortgage repayments more affordable than renting. However, as Fell points out, the recent increase in mortgage rates has erected new financial barriers, pushing buyers towards smaller, more affordable second-hand homes as they find the costs of new homes increasingly out of reach.