New-build numbers increase but fail to keep pace with housing demand

Home-building levels have risen by more than 80% in the past 10 years but by just 1% between 2018 and 2019.

The number of new homes being built each year has soared by more than 80% during the past decade, but continues to fall short of Government targets.

A total of 1.4 million new homes were registered between 2010 and 2019, according to the National House-Building Council (NHBC), which provides warranties on new-build homes.

In 2019, 161,022 properties were registered with the group, the highest level since 2007 and 81% more than than a decade ago.

But between 2018 and 2019 the number of new homes being built edged ahead by just 1%, while figures continue to be significantly below the estimated 240,000 to 340,000 new homes needed each year to keep pace with demand.

At the same time, all of 2019’s increase was seen in the affordable homes sector, which registered a 13% year-on-year rise, while registrations for properties in the private sector actually fell by 3%.

Why is this happening?

The Government has put a range of measures in place to help boost building numbers after the industry was hit hard during the financial crisis.

Initiatives including streamlining the planning permission procedure, creating an infrastructure fund to support new developments and introducing new sources of funding for small and medium-sized construction firms.

The sector has also benefitted from the Help to Buy equity loan scheme, which enables people to buy a property with just a 5% deposit, as it only applies to new-build properties.

But the industry continues to be dogged by issues, including a shortage of building materials and skilled workers, as well as a lack of suitable sites for homes.

Who does it affect?

London saw the biggest increase in new homes being built in 2019, with registrations in the capital soaring by 37%.

There was a rise in both affordable homes, which were up 42% year-on-year, and private sector properties, which jumped by 33%.

Strong gains were also recorded in the West Midlands, where new-build registrations rose by 17% and Eastern England, which saw an 8% rise.

But the number of new homes being built fell in all other regions of the country apart from Scotland, where levels were broadly unchanged.

The fall in registrations was biggest in Yorkshire and Humberside and Wales, which both saw a 12% drop, while figures were 11% lower in the South West.

Across the UK as a whole, the mix of homes being built was split broadly evenly between detached properties, apartments and semi-detached homes at 29%, 29% and 27% respectively.

This continues the trend seen since 2016, when developers started to prioritise building larger homes over apartments.

What’s the background?

The NHBC also recorded a strong increase in the construction of properties in the so-called build-to-rent sector.

These properties are high quality, professionally managed homes that are built specifically for renters and have corporate landlords and longer tenancies, as well as typically offering a range of extra facilities like in-house gyms.

Registrations for build-to-rent homes soared by 57% during the year to stand at 4,788, 281% more than when the group first began to keep data on the sector in 2015.

Build-to-rent has benefitted from government policy changes, such as the revised National Planning Policy Framework, under which local authorities have been asked to identify how many new rental homes their area needs to help them plan for rising demand.

It has also been helped by Permitted Development Rights, which enable certain buildings, such as offices or factories, to be converted in residential properties without the need for planning permission.

Top 3 takeaways

• The number of homes being built each year has soared by more than 80% during the past decade

• A total of 1.4 million new homes were registered between 2010 and 2019, with 161,022 homes registered in 2019

• But figures continue to be significantly below the estimated 240,000 to 340,000 new homes needed each year to keep pace with demand

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First-time buyers save £1 billion through stamp duty exemption

New figures show how stamp duty relief has helped first-time buyers get onto the property ladder.

First-time buyers have saved more than £1 billion collectively since the government first launched stamp duty relief for those getting onto the property ladder.

A total of 464,700 transactions have been exempt from the tax since it was introduced in November 2017, saving buyers in England and Northern Ireland £1.11 billion.

First-time buyer relief was claimed on more than one in five transactions during the final quarter of the year, saving purchasers £154 million – the highest quarterly total since the tax break was first introduced, according to the Office for National Statistics.

But the level of revenue raised through the 3% surcharge for people buying a second home or investment property fell by 3% during the same period, as buy-to-let landlords continued to be cautious about expanding their portfolios.

Why is this happening?

The government introduced the first-time buyer relief on stamp duty in 2017 to help more people get onto the property ladder.

The move means buyers who have never previously owned a property and plan to live in the home they are buying do not pay stamp duty on the first £300,000 of their home’s price.

On house sales valued at up to £500,000, they pay the tax at 5% on the portion of the price between £300,000 and £500,000.

Who does it affect?

Stamp duty relief for first-time buyers has been credited with helping more people get on to the property ladder, alongside other government schemes such as the Help to Buy equity loan and Help to Buy ISA.

By contrast, the 3% surcharge for those buying an investment property, combined with a number of other tax changes, has been blamed for a fall in the number of landlords entering the private rental sector.

The drop in investors buying property has also helped first-time buyers, as the two groups typically chase the same homes at the bottom of the housing ladder.

What’s the background?

Total revenue from stamp duty on residential purchases was slightly down year-on-year reflecting the subdued level of home sales in the property market in 2019.

A total of 752,600 residential transactions were liable for stamp duty in 2019, 3% fewer than in 2018, while receipts were also 3% lower at £8.28 billion.

Within this total there was a slight increase in the number of homebuyers who were liable for stamp duty at a higher rate.

The number of homes bought for between £125,000 and £250,000, which are liable for stamp duty at the 2% rate, fell by 3% during the fourth quarter compared with the same period of the previous year.

At the same time, there was a 5% rise in transactions valued at more than £500,000, on which stamp duty is charged at 5% on the portion of the transaction over £250,000, and as much as 12% on the portion above £1.5 million.

Top 3 takeaways

• First-time buyers have collectively saved more than £1 billion since the government first launched stamp duty relief for those getting on to the property ladder
• More than one in five transactions during the final quarter of the year claimed first-time buyer relief, saving home buyers £154 million – the highest quarterly total since the tax break was first introduced
• The level of revenue raised through the 3% surcharge for people buying a second home or investment property fell by 3% during the final three months of 2019, compared with the same period of 2018

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What's happening in the housing market in 2020?

latest State of the Property Nation report reveals what buyers, sellers and estate agents expect to happen to house prices in 2020.

Over a third of buyers actively searching for homes are looking to move within the next year - up 8% since 2017. But sellers are still cautious about putting their homes up for sale, with 31% worried they won't get their asking price.

Buyers become more confident while sellers still wary

While finding properties within budget and in the right location continues to be a challenge for buyers, the good news is there's been a 5% fall in the number of frustrated home-hunters in the past 12 months.

Finding the right location is less of a challenge for first-time buyers. Their main obstacle to becoming a homeowner is affordability: 50% perceive saving for a deposit as a challenge while 43% are concerned about securing a mortgage. But in reality, first-timers make up the largest buying group outside London and the South East, with 40% market share.

More space is the main motivation for moving home

‘Moving to a bigger home’ is the prime motivation for buying a new home, particularly among young families with 39% eager to upsize in the same area.

But over a third, or 36%, of empty-nesters are keen to 'move to a new location', often with the intention of moving closer to family.

Confidence is slowly returning to the housing market

There's been a modest increase in the number of people actively looking to buy, sell or rent a property. Of these active property seekers, 32% say they are more serious about moving than ever before -

Meanwhile, first-time buyers remain the largest buyer demographic outside of London and the South East, with a 40% market share.

Andy Marshall, Chief Commercial Officer at Zoopla, said: "With the property market, it’s easy to focus on the hard data like the number of sales, but it’s also important to scratch under the surface to understand what is motivating people to make a move.

"We are seeing a polarisation of the market. Confidence is slowly returning among buyers, but this is moderated by a feeling of caution among sellers, with ongoing economic uncertainty causing them to doubt whether they will achieve the asking price they believe their property is worth.

"The good news is that increasing numbers of people are active in the property market and that those seeking a new property are serious about making a move."

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Mortgage approvals hit highest level in four years

The latest mortgage lending figures show a welcome pick-up in the housing market.

The number of mortgages approved for people buying a home soared by 20% in December to hit a four-year high.

A total of 46,815 loans for home purchases were agreed during the month. This was the highest level since August 2015 on a seasonally adjusted basis, according to UK Finance, the banking and financial industry body.

There was also a strong rise in homeowners switching to a new mortgage deal, with approvals for remortgaging jumping by 25% year-on-year to 33,738.

But there is evidence buyers were already returning even before the election, with mortgage advances in December reaching their highest level since March 2016.

There is typically a two to three month lag between when a mortgage is approved and when the money is advanced.

Why is this happening?

The housing market has been in ‘wait and see’ mode since the UK voted to leave the EU in 2016. But the large majority won by the Conservative Party at the General Election has increased the certainty that Brexit will happen according to the current timetable. This has made people feel more confident about going ahead with a big purchase.

Even before the General Election, estate agents were talking about seeing pent-up demand for homes, with people who had delayed making a decision beginning to return to the market.

Who does it affect?

The rise in activity in the housing market is good news for potential buyers and sellers alike.

Sellers will benefit from the rise in demand as it should enable them to sell their home quicker and achieve an offer that is closer to their asking price.

Increased demand is also likely to benefit buyers, as it should encourage more people to put their home on the market, increasing the amount of choice they have.

What’s the background?

Mortgage advances for the whole of 2019 were £265.8 billion – 1.1% less than in 2018, according to UK Finance.

Alongside Brexit uncertainty causing many people to delay house purchases, stretched affordability in many regions and a shortage of homes for sale have acted as a drag on home-buying levels.

But the property market has remained more buoyant in areas of the country where house prices have remained more affordable, such as the north of England and parts of the Midlands.

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House price to earnings link lost in London but strong in other regions

Wondering what drives property values? We take a look at how earnings growth impacts house price rises.

The link between house price growth and earnings in London has become “almost entirely dislocated”, although it remains strong in other regions.

House prices typically rise broadly in line with increases in earnings, with higher wages typically pushing property values up as people can afford to borrow more through a mortgage.

But in London, this link has been broken, with pay growth and house prices often moving in opposite directions, according to estate agent Savills.

Research by the group found that property values in the capital fell by 2% in the two years to September 2019, despite earnings increasing by 7%.

By contrast, while average earnings rose by just 1% in London in 2015, house prices soared by 11%.

The study found that the link between rises in earnings and increases in property values remained strong in other regions, particularly the North West, Yorkshire and the Humber and Wales, with the ratio of house price to earnings remaining in a narrow range of 7.6 times to 8.1 times during the past five years, showing performance was based on what people could afford to borrow.

Lawrence Bowles, residential research analyst at Savills, said: “Our analysis shows that housing affordability in London is far more stretched than in any other region.”

Why is this happening?

While property in regional markets is typically bought by local buyers, overseas investors account for a significant proportion of transactions in London.

As a result, the market is influenced by other factors alongside earnings, such as exchange rates and the global economy.

The London market has also been impacted more than regional markets by stamp duty changes, including an increase in the top rate at which the tax is paid, and the introduction of the 3% stamp duty surcharge for people purchasing a second property.

These factors have diluted the impact earnings growth has on the market.

Who does it affect?

The disconnect between house prices and earnings in London is bad news for people wanting to buy a home there.The fact that earnings growth has only a limited impact on property values has led to affordability becoming increasingly stretched.

Despite this, demand from overseas investors, who typically have deeper pockets, could continue to push London prices higher.

By contrast, in other markets across the UK, house prices tend to stagnate once property becomes unaffordable while earnings catch up.

What’s the background?

Despite the disconnect between London house prices and earnings growth, Savills predicts the market will remain subdued until affordability improves, predicting price rises of just 4% in the capital in the coming five years.

Across the whole of the UK, Savills thinks prices will rise broadly in line with average earnings growth, increasing by just over 15% between now and the end of 2024.

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Britain’s best value commuter towns revealed

As this year's average 2.8% annual rail fare hike comes into effect, we take a fresh look at which commuter towns are most affordable.

Grays in Essex is the most affordable place for commuters working in London to buy a home.

The combined cost of a season ticket and mortgage repayments on a property in the town, which takes 41 minutes by train to Fenchurch Station, comes to £15,008 a year, according to our data.

It is followed by Leagrave in Bedfordshire, which has a traveling time of 55 minutes to the capital, with annual costs totalling £15,399, and Crayford in Kent at £15,662.

Basildon and Harlow, both in Essex, complete the top five with commuting times of 37 minutes and 41 minutes respectively.

Laura Howard, consumer expert at Zoopla, says: “As the new season ticket prices come into effect this month – much to the frustration of the millions of commuters across Britain – those looking to relocate to save money should pay close attention to these figures.

“The past decade has seen significant property price growth in prime London commuter belt towns but, despite this, our analysis still identifies pockets across South East England that represent affordable value for commuters.”

What about Bristol?

Potential buyers looking for an affordable home within commuting distance of Bristol should look across the water to Wales.

Newport is the best value commuting town for Bristol, with annual mortgage and season ticket costs adding up £10,166 and a travel time of just 35 minutes to Bristol Temple Meads station.

Highbridge and Burnham in Somerset is the next most affordable location at £11,595 a year, followed by Bridgwater, also in Somerset, at £11,975.

Caldicot in Wales and Weston-Super-Mare in Somerset also represent good value for workers in Bristol.

... and Birmingham?

Wolverhampton not only offers the most affordable homes for people working in Birmingham at a combined cost of £7,484 a year for mortgage payments and a season ticket, but also the shortest commute overall of just 20 minutes.

Cannock in Staffordshire is the next best value for those employed in Birmingham at £7,934 a year, followed by Stoke-on-Trent at £8,273.

Telford and Wilnecote complete the top five of the most affordable towns within easy commuting distance of Birmingham.

Northern commuter cities

Northern cities tend to be more affordable than those in the south, so people are more likely to be able to live close to where they work.

Even so, people working in Manchester who want a cheaper location should consider Hindley, a 58-minute journey away, where combined annual mortgage payments and season ticket costs add up to £6,883.

Homebuyers looking for value within commuting distance of Edinburgh should look at Dunfermline, where mortgage repayments and travelling costs will set them back by £7,530 a year.

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First-time buyer numbers hit 12-year high

Thinking of taking your first step on the property ladder? You are not alone with first-time buyer numbers last year reaching their highest level since 2007, says a major lender.

First-time buyer numbers hit a 12-year high in 2019, accounting for more than half of all homes bought with a mortgage.

An estimated 353,436 people purchased their first property during the year, the highest level since 2007, according to Yorkshire Building Society.

While the total was broadly unchanged from 2018’s figure of 353,130, it was nearly twice as high as the 191,040 people who bought a first home in 2008, and continued to edge closer to the pre-financial crisis level of 400,870 recorded in 2006.

At 51%, first-time buyers also accounted for more than half of all home purchases made with a mortgage for the fourth consecutive year, up from just 38% in 2008.

Nitesh Patel, strategic economist at Yorkshire Building Society, said: “Even though the number of first-time buyers has stayed pretty much the same as last year, it is still encouraging to see first-time buyers top 350,000 for the second year in a row.

“They also represent over half of all homes bought with a mortgage, meaning the first-time buyer mortgage market share is at its highest since 1995, when they bought 53% of all mortgage-financed homes.”

Why is this happening?

A combination of factors has helped to boost first-time buyer numbers in recent years.

On the one hand, this group has been helped by an increase in lenders offering mortgages of 95% of a property’s value, reducing the size of the deposit first-time buyers need.

There has also been an increase in the availability of mortgages with terms of up to 40 years, which increases the affordability of monthly repayments.

At the same time, first-time buyers have also benefitted from significant government support, such as the Help to Buy equity loan scheme and Help to Buy ISA, as well as stamp duty relief on the first £300,000 of a property’s price.

Who does it affect?

Although London and the South East being the most expensive regions for first-time buyers, with typical first homes costing £415,618 and £264,097 respectively, they are also the most popular places for people getting on to the property ladder.

One in five people who bought their first home in 2019 did so in the South East, while 12% bought one in London, significantly higher than in other regions of the country.

First-time buyers accounted for 60% of all house purchases with a mortgage in London, despite putting down an average deposit of £131,000.

What’s the background?

Yorkshire Building Society said the slow year-on-year growth in first-time buyer numbers suggested they may now be plateauing due to affordability constraints.

It pointed out that property prices have grown faster than salaries over the past 12 years, meaning larger deposits are required to get on to the housing ladder.

Patel said: “These figures show the market may now have reached its peak and buying your first home still remains tough for many.”

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Confidence returns to the property market

Sentiment towards the housing market looks positive as we hit 2020, according to the latest mortgage figures.

The housing market enjoyed a late autumn bounce with mortgage approvals for house purchase rising by 7% in November.

A total of 43,589 mortgages were approved by the high street banks for people moving home during the month, according to UK Finance.

There was also an increase in the number of loans approved for people remortgaging, with these rising by 12.7% year-on-year to 34,653 - the second highest level recorded in 2019.

The figures suggest confidence is returning to the housing market, despite the ongoing uncertainty surrounding Brexit.

Tomer Aboody, director of MT Finance, said: “It is positive for the market thatremortgages and mortgages for new purchases edged higher in November.

“This reflects sentiment in the market, which has been enhanced by a strong Conservative government coming in which will support the economy and housing growth.”

Why is this happening?

The final quarter of the year is traditionally a busy time for remortgaging with competition in the market intensifying as banks and building societies cut their rates in order to meet their end of year lending targets.

As a result, not only are homeowners who are sitting on their lender’s revert rate tempted to remortgage, but people who have taken out new mortgages during this period in previous years also look for new deals as their existing one comes to an end.

The increase in mortgage approvals for home-movers is slightly more surprising, as the housing market typically slows down in the run up to Christmas.

The figures suggest that potential buyers who had previously sat on their hands due to Brexit uncertainty may now be returning to the market.

Consumer confidence is likely to have increased further since the General Election, with the Conservative’s strong majority making it more likely that the UK will exit the EU according to the current timetable.

Who does it affect?

A return of confidence in the housing market is good news for everyone.

The market is currently stuck in a vicious circle in which the lack of confidence has caused existing homeowners to delay putting their properties on the market to trade up the ladder.

The situation creates a lack of choice for people who do want to go ahead with a purchase, which in turn makes them less likely to list their own property, exacerbating the shortage of homes for sale.

The current low level of transactions is particularly bad for first-time buyers, who need people to trade up so that properties at the bottom of the ladder become available.

What’s the background?

Confidence is only one factor that affects property transactions, with affordability also playing a key role.

Affordability levels have become increasingly stretched in southern markets in the past two years following strong house price growth.

As a result, these regions saw the slowest house price rises in 2019, according to our data.

By contrast, property remains much more affordable in northern parts of the country, with property values in Wales increasing at more than twice the national average during the past year, while North West England and Yorkshire and the Humber also saw strong gains.

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Housing market expected to enjoy a post-election bounce

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Private landlords sell up following tax changes

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