Last year the new-build residential property market in the UK hit a record high not seen since 1997. In London alone there were new housing construction orders to the value of £5.4 billion, as well as a 10 per cent year-on-year increase in the commencement of new house builds with an 11 per cent year-on-year increase in completions.
Despite the increase in new house builds, the UK is still experiencing a housing shortfall. The Confederation of British Industry says that in order to catch up with the ever-increasing housing demand, the UK needs to build 240,000 new homes per year. Over the past 14 years, the industry has come close to (but still fallen well short of) that target only four times. The shortage has naturally resulted in growing demand, which has pushed up prices, increased the buy-to-let market and potentially scared off first-time buyers. To keep first-time buyers interested – and to give them a fighting chance – the government has responded with various schemes and programmes to make accessing the property ladder more affordable.
Pros and cons
While changes to stamp duty charges and home buying assistance programmes have made property more accessible, they’ve also added to the demand for new housing. Unfortunately, new-build growth is hampered, in no small part, by a shortage of skilled construction workers. In fact, it’s reached the point where the Bank of England has warned that the UK housing market is the ‘greatest domestic risk to UK financial security’.
On a positive note, the government has tailored new housing developments on under-used or brown land, adding the sweetener of a minimum 20 per cent discount to new builds. The scheme targets tens of thousands of young Britons who would otherwise not be able to afford buying homes because of soaring house prices across the country. The construction industry is also getting a nice sweetener by way of a waiver of planning costs and levies in return for a promise of such discounts from house-builders.
The Office of National Statistics revealed that, while the average house price in the UK is still very high, it looks as though it has started a downward trend. It’s not unreasonable to expect that demand will once again increase in the event of ongoing price reductions, especially in the under £250,000 market (with no stamp duty).
Another factor that will affect residential property prices is the mortgage cap implemented by the Bank of England, which also allows the FSA (Financial Conduct Authority) to undertake more thorough affordability checks on homeowners. The processes installed by the FSA are also intended to ensure that Britons are able to withstand a rise in interest rates, which are still at a low 0.5 per cent.