New-build sector can develop with the right backing

22 March 2010

The National Housing Federation estimates that the UK needs to build at least one million new houses each year to ensure our population has access to homes and meet what some might call a national passion for owner-occupation. But in the past two years new-build developments have been hampered by the recession and subsequent lender nervousness.

Added to this, we have just had one of the coldest Januarys on record. This rendered it pretty much impossible to even put a spade in the ground let alone step up building activity to the level needed to meet demand.

Statistical projections show that only 122,000 new homes are likely to be completed in the year to April 2010, the lowest number in any year since 1923.

That said, there is hope to be found in NHBC data which shows that applications to build homes in the three months prior to January were up 65% - a big improvement on the same period in 2009.

National and local house builders have been hit hard by the recession and many have done well to cling on by mothballing sites and dramatically cutting costs.

Sites are now starting to re-open and both Connells’ and Sequence’s new-build specialist teams are seeing more activity.

Only 122,000 homes are likely to be completed in the year to April 2010, the lowest number since 1923

Recent results from larger house builders are also encouraging. Taylor Wimpey saw an improvement in the second half of 2009 with the group order book increasing by 21%.

The company’s chief executive officer commented that while Taylor Wimpey would remain cautious it is continuing to see improving conditions.
Barratt has completed a refinancing exercise and started investing in new land.

The company’s CEO has said that the value of its forward order book is up 27% compared with the previous year.

Of course, the immediate problem is not a shortage of sites but a shortage of mortgages.

Lenders continue to show nervousness in the new-build market, valuing new properties on a second-hand basis and insisting
on at least a 10% deposit.

And they want much more for loans with any sort of decent interest rate.

With this in mind, perhaps now is the time for government support in the form of lender guarantees for which a premium could be added to the loan.

As taxpayers we are guaranteeing the banking system so why not first-time buyers?

The Enterprise Finance Guarantee scheme helps some self-employed individuals obtain commercial finance so why is there not a first-time buyer equivalent?

This would bring new buyers to the market, encouraging more sellers to participate and lenders to lend.

Ultimately, we must ensure that first-time buyers get the correct advice on new-builds and use specialist brokers so confidence can be restored.

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