"With the new build sector continuing to face a significant number and variety of obstacles, it’s interesting to see how developers will react from a pricing perspective"
It’s hardly a controversial statement to suggest that the UK needs to build a greater number of affordable housing to fulfil ongoing homeownership aspirations and deliver options for a growing number of tenants. The bigger debate is how to go about this.
Back in July, we saw planning reforms announced with a view to helping build a million new homes across England. This included a review of permitted development rights in a bid to shake up planning rules and the setting out of plans to make it easier to convert large shops — such as takeaways and bookmakers — and offices into homes.
In theory, these reforms represent positive steps but such a plan doesn’t come without some scepticism and this scepticism was certainly evident in a recent poll of 270 buy-to-let landlords conducted by Mortgages for Business which found that only seven per cent of respondents thought that the reforms would be successful.
This also emerged in the wake of UK housebuilding falling at the second-fastest pace since the first Covid-19 lockdown, with the construction sector only registering “a slight increase”.
The S&P Global/CIPS UK Construction PMI fell to 40.7 in August, down from 43 in July and the second-lowest level recorded since May 2020. Outside of the pandemic period, this was said to be the lowest reading since Spring 2009, and this sharp drop was the main driver in pushing the overall construction PMI down to 50.8 in August from 51.7 the previous month. The sector also registered a decline in new order volumes for the second time in the past three months, the steepest drop since May 2020.
With the new build sector continuing to face a significant number and variety of obstacles, it’s interesting to see how developers will react from a pricing perspective, what the impact of demand will be on the new build sector and the uptake of ‘alternative’ options.
Cost will inevitably play a key role. With this in mind, it was interesting to see further data, this time from development site sourcing specialists Searchland, find that typical new builds cost 120.1% more than the price of construction, with construction costing £198,000 and new build prices averaging £436,000, a chasm of £238,000.
From a regional perspective, the South East has the biggest deferential, where it costs £219,000 to build a property and an average of £533,000 to buy a new build, a substantial difference of 142.9%.
There’s a closer relationship between the cost of constructing a new build and the end product in the North of England. In the North East, there’s a reported difference of only 57.8% between the construction cost of £177,497 and the typical new build price of £280,012. There’s similarly just a 71.3% gap in Yorkshire and the Humber and a 76.0% divide in the North West.
These figures demonstrate the varying premiums still attached to new builds. So what other options may be available for those borrowers interested in the energy efficient nature of a new build but who can’t find one which meets their exacting requirements? Or for older homeowners sitting on larger plots who may be looking to help their children or grandchildren onto the property ladder. Or maybe someone with a substantial starting pot from a previous property sale tempted by the idea of an exciting new and maybe grander property-related ‘project’?
The answer could be self-build.
Self-build enquiries may not be everyday occurrences for advisers and the lending pool is obviously far smaller than for other residential product types but this shouldn’t be viewed as a barrier, more of as an opportunity.
As with any new purchase, the figures need to add up for the individual(s) involved and this is where experienced self-build lenders can help ensure that clients are fully aware of all the pros and cons involved from a practical and financial standpoint at various stages in what can sometimes be a rollercoaster journey. After all, this kind of lending is very much a partnership and one which can deliver the right type of build for the right type of client(s).
