Higher development and construction costs, surging demand, and lower energy bills are just a few of the reasons why new-build houses are on the rise
The charm of spacious dimensions and historical detail in old English buildings do attract many, but with the cost of living on the rise, historic homes are becoming less popular by the day.
Based on real house sales statistics by Land Registry, the latest data shows that the cost of a new-build home appreciates by 25.4% each year, having reached £367,219 in November 2021. This compares to an 8.6% yearly increase to £264,684 for current properties, creating a massive gap between the two.
Since the beginning of the pandemic, the housing market has grown steadily, owing to a supply-demand mismatch. There seem to be many causes for the price discrepancies between new and older houses, and in both situations, the epidemic and a shortage of supply are the driving increasing prices, yet new builds still leap ahead with a 16.8% advantage. Even though these residences have been the subject of some criticism in recent years, millions of old building homeowners are caught in leasehold contracts with exorbitant ground rents that render their buildings unsellable. Common examples include many old constructions coated in dangerous fire cladding, causing the value of their homes to depreciate.
“The pandemic has shifted buyer expectations, and developers have reacted by offering more detached and semi-detached houses,” says David Fell, senior analyst with Hamptons estate brokers. “As larger properties are sold, overall average prices have risen. At the same time, a scarcity of second-hand stock has prompted purchasers to resort to new construction, and as a consequence, more family houses have been sold off-plan.”
The pandemic had and has a considerable influence on the housing market, causing many individuals to reconsider where to live and work
Since working from home has become part of the everyday in the past year, many have created a home office space and can continue to perform remotely and no longer require to travel to the city centre. Since Covid-19, many new homes are created with this in mind, and homeowners also consider this new addition and finishings when purchasing a new home.
“New constructions are emerging as huge winners in the post-lockdown housing market — for the simple reason that they are the most likely to give precisely what purchasers want,” says Chris Gardner, joint chief executive officer of development lender Atelier.
Energy-conscious living and cost plays a role in home ownership
A new construction home has numerous benefits, which is why they are more costly. They have reduced maintenance expenses and are often significantly more energy-efficient, which means a reduced gas and electricity bills will help to offset the higher price tag.
Energy bills are a hot subject currently as the government has proposed two new cost-cutting initiatives. The spring statement reduced VAT on goods used in energy-efficient measures like insulation and solar panels to 0%; and homeowners are eligible for a £5,000 subsidy should they replace outdated boilers with heat pumps.
According to recent data from tax experts at Cornerstone Tax, 45% of homeowners are becoming increasingly more energy-conscious, and with government assistance to bring down the cost, the switch to greener living is much more affordable.
The cost of building materials has also played a significant role in raising expenses. Building materials are at an all-time high, and supply concerns have pushed up the cost of new construction.
“New-build housing naturally involves a higher price relative to current housing stock,” explains Eve McCurrich, managing director of new-build construction business, Whiteburn Projects Ltd. “Recently, building and development expenses have suffered extraordinary increase due to a lack of supply after Covid, Brexit, and now greater geopolitical concern in Europe with the invasion of Ukraine.”
Another factor for the increase in the availability of financing for new construction. To escalate the prices even more, the help-to-buy loan program makes financing for a new construction more challenging as the mortgage scheme is set to expire next March. Purchasers will be rushing to take advantage of the opportunity before it expires in 2023.
That being said, some experts have also stated that mortgage lenders are more likely to lend to individuals purchasing new-build houses since they are seen to be less hazardous than older properties. New construction tends to include a new house warranty that should protect the homeowner should something go wrong. Currently, the most prevalent insurance is the National House-Building Council (NHBC), which covers 70% to 80% of the market, according to the Home Owners Alliance.
“Most mortgage lenders prefer to lend on new-build stock because it comes with NHBC guarantees,” says David Hannah, group chairman of Cornerstone Tax. “I have heard of first-time purchasers being turned down for mortgages on second-hand houses but then approved for a more costly new-build one. The reasons for this are probably that the mortgage lenders regard these as lower risk.”