UK developers offering sweeteners to one in five home buyers
UK HOUSEBUILDERS are throwing in freebies such as free cars and home loan contributions in a bid to lure buyers after surging borrowing costs sapped demand.
One in five new homes for sale at the end of October were advertised with sweeteners, according to data compiled by RBC Capital Markets and seen by Bloomberg News. That’s up from fewer than one in 10 over roughly the past decade, according to RBC estimates.
“In a hot market where homes are selling out, then no incentives will be required,” said Anthony Codling, housing analyst at RBC Capital Markets. “They are used when the housebuilder is keen to accelerate the sales rate to sell the ‘last few remaining’ so that they can get off site and reduce costs.”
UK households are facing a barrage of pressures triggered by pricey borrowing and a cost-of-living squeeze. That’s led to a slump in first-time-buyer sales as prospective homeowners stay in rental properties rather than take on mortgages. UK home loan lending is set to record decade-low growth in 2023 and next year, according to a report published on Monday (Nov 6) by forecaster EY Item Club.
Britain’s construction industry suffered a second month of shrinkage in October as higher borrowing costs hit house-builders and worries about the weak economy put clients off new investment, a survey showed on Monday.
The S&P Global/CIPS UK construction Purchasing Managers’ Index (PMI) improved only marginally to 45.6 from September’s 45.0, which was the lowest reading since May 2020 when Britain was under a COVID lockdown.
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October’s reading remained well below the 50.0 growth threshold.
Hayfield Homes – a luxury developer based near Birmingham – this summer offered prospective customers discounts up to the value of a £42,990 (S$71,909) Tesla car. The builder, whose developments include detached houses within commutable distance of London, offered other incentives, including stamp duty contributions, moving costs and estate agency fees.
“The end of Help-to-Buy and the general cost of living squeeze exacerbated affordability issues, especially for the first time buyer,” said Aynsley Lammin, a building and construction analyst at Investec, referring to a government incentive program. “As demand for new houses deteriorated, the housebuilders focused on cash.”
The nation’s biggest homebuilders are among firms offering sweeteners.
Taylor Wimpey said this summer incentives were running at 5 per cent of the house price, compared with about 2 per cent in 2022, with the company offering mortgage contributions, deposit help and personalised home upgrades, such as kitchen counters and carpets.
Barratt Developments launched a ‘Rent-then-Buy’ programme in September across the south-east of England – where house prices are falling faster than in most other parts of the UK. The offer allows first-time buyers to let the property for six months while their payments build up from an initial 2.5 per cent deposit to 5 per cent.
Barratt said last month it was focused on driving revenue with a “targeted use of incentives” in the year ahead. The firm’s average weekly private net sales rate languished below 0.5 between July 1 and Oct 8. That’s down from a rate of 0.85 in 2022.
“The first half of 2022, incentives were very, very low,” Taylor Wimpey’s chief executive officer Jennie Daly said on a call with analysts this summer. “It oscillates with confidence in the market,” she added.
Still, the percentage of new homes advertised with incentives has reduced slightly since early August, declining from about 25 per cent to just over 20 per cent. That’s as mortgage costs have slowly declined from the 15-year high reached over the summer, helped by a double pause in interest rates from the Bank of England.
What’s more, a pledge from the opposition Labour Party to accelerate the country’s sluggish planning system and to build 1.5 million homes over the next term of Parliament may boost sentiment among developers.
“The situation is not getting worse,” RBC’s Codling said. “The new-build market is operating in a stable environment – albeit a low volume one.” BLOOMBERG, REUTERS
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