London New Build Home Sales Plummet Nearly 37% Amidst Buyer Apathy and Rising Costs

Sales of new-build homes in London have experienced a significant downturn, with a nearly 37% decrease 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 in early 2024, a stark contrast to the 8,840 sold in the first half of 2023. In 2022, a total of 20,380 new homes were sold.

Molior data indicates a record 4,629 newly completed homes remained unsold across London in the three months leading up to June, representing an estimated £3.5 billion in housing stock. This surplus has prompted housebuilders to scale back on new projects, with some halting construction midway. Currently, 56 developments in the capital, comprising 3,913 partially built homes, have been put on hold.

The primary drivers behind this slump are a collapse in buyer demand and escalating construction costs. An anonymous construction industry source noted that the cost of building a home in London has surged by 75% since 2016. The expense of constructing a typical 70-square-meter, two-bedroom flat has risen from approximately £245,000 in 2016 to around £430,000 today. Concurrently, average flat values in London have seen a decline, according to Land Registry figures.

The total number of homes under construction has also decreased dramatically, 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.

A broad spectrum of buyers, including home movers, landlords, overseas purchasers, and build-to-rent companies, have withdrawn from the market. Sales to British owner-occupiers, encompassing first-time buyers and home movers, fell to just 3,220 for the entirety of last year. The first six months of 2024 have seen only 1,219 new build sales to this demographic, putting the year on course for a further reduction from the 7,942 sales recorded in 2022. A significant factor in this decline was the phasing out of the Help to Buy scheme, which facilitated 4,223 purchases in 2022.

A notable contributor to the slowdown is buyer reluctance towards leasehold properties, which constitute a majority of flats. These homes have faced scrutiny due to issues such as unsafe cladding and escalating service charges, leading 90% of leaseholders surveyed by Propertymark to express regret over their purchase.

Jeremy Matallah, co-founder of the rent-to-buy scheme Keyzy, highlighted that beyond leasehold concerns, the prohibitive cost of homeownership is a major barrier. He noted that for many first-time buyers, accumulating a deposit while managing London's high rents presents the most significant hurdle, even if they can afford monthly mortgage payments.

Corporate entities are now responsible for the majority of new build sales in London, accounting for one in five transactions. In the first half of this year, companies, including landlords and build-to-rent providers, purchased 3,825 new builds, compared to 1,781 bought by individuals. Tim Craine, director at Molior, stated that many investors are selling existing properties, often at prices 20% below comparable new-builds, which further saturates the market and dampens demand for new developments.

Build-to-rent providers, large-scale corporate landlords funded by institutional investors, acquired 2,636 new build units in the first six months of 2024, a slight increase from 2,524 by the same point last year. However, this figure represents a decrease from the 7,442 units acquired in 2022 and 4,422 in 2023.

Stamp duty further acts as a disincentive. A British buyer purchasing a £600,000 property could face £20,000 in stamp duty, while overseas investors would pay £62,000. For properties above £925,001, stamp duty rates increase significantly, with additional surcharges for second-home buyers and overseas purchasers.

Rising mortgage rates, influenced by inflation, are adding to the financial pressure on potential buyers and those remortgaging, reversing earlier hopes of interest rate cuts by the Bank of England. This makes securing favorable mortgage terms even more critical for all buyer types.