Insights on the New Homes Market and Specialist Lending
Adrian MacDiarmid has been Head of Mortgage Lender Relations for Barratt Developments since 2008, working with brokers lenders and distributors to help improve products, process and criteria in the New Build sector. He was previously Sales Director for a New Build mortgage broker has nearly 40 years’ experience in the mortgage market.
New starts?…
In her first speech as Chancellor, Rachel Reeves promised to “get Britain building again” by reintroducing compulsory housebuilding targets and overhauling planning restrictions. She confirmed Labour’s manifesto commitment to building 1.5 million homes across England during the course of this parliament but was careful to point out that didn’t mean a “green light” to any housing, anywhere.
There’s no doubt the housebuilding industry could do with a boost. In the latest Housing Pipeline Report from the Home Builders Federation, it shows the number of planning permissions granted for new homes continues to fall sharply, down 20% year on year, with 2023 seeing the fewest number of sites approved since records began in 2006. So if the change brings about a permanent improvement that will encourage housebuilders large and small for years to come, it will be worth waiting for.
SME housebuilders have suffered particularly badly over the last 20 years with the sector shrinking drastically. Whilst larger housebuilders like Barratt can work with projects which might take 3-4 years to pay back, SMEs don’t have that luxury. A speedier, less bureaucratic and predictable system will benefit smaller housebuilders who are often much better placed and inclined to deliver small schemes on unusual sites.
One term which has cropped up a few times when talking about areas where Labour would like to allow new houses to be built, is the ‘grey belt’. Unlike the ‘green belt’ which is a designated planning zone established more than 70 years ago to limit the growth of large built-up areas and stop towns merging into one, there’s no such thing as the grey belt. Labour has described the grey belt as “poor quality and ugly areas” such as disused industrial areas, car parks and wasteland situated on parts of protected land in the green belt. When most people think of green belt they think of fields and wildlife but there are lots of places within the green belt very well suited to being used for housing. Few people would object to ugly, disused industrial land being transformed into vibrant housing schemes, but the green belt designation makes that much harder for housebuilders to achieve. The case of a disused garage site in Tottenham, north London, has been used as an example of a green belt site that cannot be developed into housing because of its designation. ‘Grey belt’ is quite a good way of getting people to think differently about developments in those types of places.
The Chancellor also announced a recruitment drive for additional planning officers, with new funding for an additional 300 people to speed things along, although much more than this will still need to be done. The support will also extend to major infrastructure projects with decisions made nationally rather than locally in an attempt to overcome NIMBYism and red tape. All good ideas and I look forward to seeing how quickly the action starts.
Affordability remains one of the biggest challenges to growing activity in the housing market. From a new homes perspective, developers are trying to deliver more energy efficient homes to meet net zero targets but this inevitably adds to the build cost and eventual sales prices. Although most developers support the move to greener homes, this doesn’t help to bridge the affordability gap. One suggestion we have made is the possibility of lenders using lower energy bill estimations on these more energy efficient homes to help meet affordability calculations. Losing Help to Buy has been a blow and with no other demand side initiatives on the horizon, housebuilders and lenders will have to innovate to help our mutual customers. The Deposit Unlock scheme, developed by the Home Builders Federation, is a good example where suitable buyers can apply for 90-95% mortgages with terms of up to 40 years when buying through participating housebuilders. Another is lenders being willing to provide joint borrower / sole proprietor mortgages enabling borrowers to have help from several people to meet affordability criteria, such as parents for example.
It has also been positive to see Labour’s manifesto commitment to their Freedom to Buy mortgage guarantee scheme which will help people who are currently struggling to be able to save for a deposit towards a new home. However, a word of warning. Supply side reform only works if there is demand side appetite, so support for buyers and interest rate reductions will be very important in tandem.
Changes to the house buying demographic mean that specialist mortgage lenders have had an increasingly important role to play in helping people buy homes, and I think that will only get bigger. More people have more unusual and/or multiple income sources these days and one of the repercussions of the squeeze on household incomes has been an increase in credit defaults. Whilst some of these financial ‘blips’ might preclude a mainstream lender from assisting, there’s now a great selection of specialist lenders who will.
Collaboration between government, housebuilders and lenders is so important to the health of the property market. We all need to work together to overcome affordability challenges and to keep innovating in a constantly evolving market. There are huge societal benefits to home ownership. It can help to create intergenerational wealth, provide stability which leads to better educational outcomes and deliver brighter futures.
Overall the early signs are positive that the new government is prepared to take bold decisive action and it is encouraging to see how much they want to work with industry on their policies. Ultimately, we must do everything we can to help and encourage all of our customers.