London New Build Home Sales Plummet Amidst Buyer Apathy and Rising Costs

Sales of new-build homes in London have experienced a sharp decline, with a nearly 37% drop in the first six months of this year compared to the same period in 2023. Property consultancy Molior reported that 5,606 new homes were sold, a significant decrease from 8,840 in the prior year, and a stark contrast to the 20,380 sold in 2022.

The capital is now facing a record high of 4,629 newly completed homes remaining unsold, representing an estimated £3.5 billion in housing stock. This situation has prompted housebuilders to scale back or halt new projects, with 56 developments, comprising 3,913 partially built homes, now reportedly padlocked across the city.

Factors Driving the Downturn

The primary drivers behind this collapse in demand are a combination of a significant drop in buyer appetite and escalating construction costs. An anonymous construction industry source indicated that the cost of building a home in London has surged by 75% since 2016, with the cost of a typical 70-square-meter two-bedroom flat rising from £245,000 to approximately £430,000. This increase has occurred while the average value of flats in London has fallen, according to Land Registry figures.

The total number of homes under construction has also seen a dramatic reduction, with 33,000 private homes currently being built. Projections suggest that only 8,750 homes will be on-site by January 2028, excluding any new developments initiated before then.

Disappearing Buyers

Demand has waned across all buyer segments, including home movers, landlords, overseas buyers, and build-to-rent companies. In the entirety of last year, only 3,220 new builds in London were purchased by British owner-occupiers. This year's figures are on track to be even lower, with 1,219 sales to British home buyers in the first six months.

An increasing reticence among buyers to purchase leasehold homes, which constitute the majority of flats, is a significant contributing factor. Issues such as unsafe cladding and escalating service charges have led 90% of leaseholders surveyed by estate agent membership body Propertymark to express regret over their purchase.

Jeremy Matallah, co-founder of rent-to-buy scheme Keyzy, highlighted that beyond leasehold concerns, the sheer cost of homeownership has become an insurmountable barrier for many. "For many first-time buyers, the biggest obstacle is saving for a deposit while paying London’s sky-high rents," Matallah stated. "With sales to UK individuals having reduced by almost 40 per cent in two years, it’s clear how difficult it has become for ordinary Londoners to buy."

Investor and Corporate Activity

While individual buyer interest has diminished, companies, including landlords and build-to-rent providers, now account for a larger proportion of the remaining sales. In the first half of this year, companies purchased 3,825 new builds compared to 1,781 by individuals. However, even this segment shows signs of waning interest. Build-to-rent purchases, which stood at 7,442 in 2022, fell to 4,422 in 2023 and 4,292 in the first half of 2024.

Tim Craine, director at Molior, noted that many investors are selling existing properties, often at prices significantly below comparable new-builds, creating excess competition and suppressing market prices. This surplus of second-hand apartments, particularly in areas like Canary Wharf, discourages new development.

Stamp Duty as a Barrier

The upfront cost of purchasing a property, including stamp duty, remains a substantial disincentive. A British buy-to-let investor or second home buyer purchasing a £600,000 property could face £50,000 in stamp duty, with overseas investors paying £62,000. Even for first-time buyers and home movers, the stamp duty on a £600,000 home amounts to £20,000. The tax burden escalates significantly for properties above £925,001, with surcharges for second homes and overseas buyers further increasing the cost.

Matallah suggested that addressing the upfront barriers to purchasing could help both aspiring homeowners and developers. "New approaches that reduce the upfront barriers to buying can benefit everyone, they help people on to the ladder while allowing developers to recycle capital into building more homes,"

Adding to the market pressures are elevated mortgage rates, driven by inflation. Recent increases in mortgage costs make it more challenging for potential buyers and those looking to remortgage, further impacting the already subdued demand for new-build properties in London.