There has been significant political and economic upheaval during 2020.
The year started well with strong forward sales, a robust economic environment and a more stable political backdrop following a decisive General Election with the Government Elections securing the largest Parliamentary majority for 15 years.
The onset of the Covid-19 pandemic brought significant uncertainty, however, demand for new build homes has remained resilient. During the second half of the year, the housing market has been boosted in part by pent up demand following the first national lockdown and Government stimulus, such as the stamp duty holiday and the original Help to Buy scheme which closed for new reservations on 15 December 2020 in England. Strong sales rates continued through to the end of the year, with the Group achieving a 12% higher weekly average private sales rate compared to the same period last year. The near term outlook is more mixed with the end of the Brexit transition period, the risk of increased unemployment and reduction in mortgage availability at higher loan to value ratios. Despite these headwinds, the longer term outlook remains favourable as demand for new build homes remains strong.
The chronic shortage of homes in the UK continues. Despite generally increasing output, it is estimated that a shortfall of over 1.2m homes since 2008 exists in England. The Government remains committed to its current target of supplying 300,000 homes per year by the mid-2020s to attempt to combat the imbalance between supply and demand. The Group has delivered 116,702 new homes in the last eight years. With its strong liquidity, high quality land holdings, diverse network of sites and 31 regional operating businesses, the Group is well placed to grow volumes and continues to play its part in delivering much needed housing supply.
Mortgage availability and affordability
At the start of 2020, the mortgage market was competitive with a wide variety of products available for customers at different loan to value ratios. Since the initial lockdown period, there has been a tightening of mortgage availability, particularly in respect of higher loan to value products.
Interest rates remain at all time lows with each of the devolved Government’s Help to Buy policy and other equity loan schemes and the stamp duty holiday increasing affordability for homes. This has provided support to the housing market. The original Help to Buy scheme in England closed on 15 December 2020 for new reservations and has been replaced by a new scheme. The new scheme is open to first time buyers only and is subject to regional price caps. In Wales, the property price cap under the Help to Buy scheme reduces to £250,000 from 1 April 2021 and in Scotland, the Help to Buy scheme closed on 5 February 2021. The Scottish First Home Fund will re-open on 1 April 2021. The Group provides homes for all, having a private average selling price of £250,897, c.17% below the UK national average*. Approximately 50% of its private completions were to first time buyers.
The availability of skilled labour remains a key issue and developing the supply of trade skills will be essential if the industry is to continue to increase the volume of new homes built in the UK. Brexit and its impact on the free movement of construction workers is also likely to be a factor although this will have more of an impact in the London and South East regions (an area where the Group has a lower presence) due to the relatively high proportion of EU nationals working within the construction industry in those areas.
Planning and regulation
The Government remains supportive of the housebuilding industry. Its ambition is to deliver 300,000 new homes by the mid-2020s. Local planning authorities are required to put in place five-year plans to meet their housing needs which should ensure a consistent supply of consented land to enable the housebuilding industry to commit capital to long-term projects. The Government’s Revised National Planning Policy Framework, published in July 2018, aims to make it easier for planners, developers and local councils to deliver good quality housing at a faster pace in places where people want to live.
In August 2020, the Government released its White Paper ‘Planning for the Future’ focusing on streamlining the planning process and bringing new focus to design and sustainability. We welcome proposals to speed up and simplify the planning system and look forward to working with Government in developing reforms which benefit all stakeholders.
On 1 October 2019, the Government launched a two-part consultation on proposed changes to Building Regulations for new dwellings. The proposed new regulations aim to ensure that all new homes built from 2025 will produce 75-80% less carbon emissions than homes delivered under current regulations. The Group has established a low carbon home Steering Group to manage the Group’s transition to low carbon homes.
* National average selling price for newly built homes sourced from the UK House Price Index as calculated by the Office for National Statistics from data provided by HM Land Registry.