News & Blogs

26 Apr

Housebuilders report major profits post pandemic – how has it happened, and will it last?

It’s been widely reported that a string of Britain’s major housebuilders have seen their profits boosted in the two years since the pandemic hit; with so many businesses negatively impacted by Covid and Brexit it bears the question how has it happened, and is it destined to last?

Buyers encouraged by stamp duty holidays and record low interest rates, coupled with accidental savings as a result of lockdown restrictions stormed the market searching for more spacious homes.

Borrowing costs have been comparatively low enabling housebuilders to obtain finance and buyers to obtain cheaper mortgages, generating more spending power across the board. It is understood that many housebuilders are pressured to spend their budgets within a set time period or they lose it, so with their financial years often aligned a competitive ‘race for space’ is created which naturally drives land values higher which purchasers have been able to cover with new cash reserves.

During the pandemic, households discovered they had less spare space than they did a couple of years ago with has resulted in bedrooms doubling up as offices and homeowners embarking on extension projects to create new office space. This squeeze for space, combined with the above factors has prompted many people to extend (if they can) or move.

The pandemic has also refocussed people on what is important to them, leading to a surge of moving from city centre flats to houses with private gardens. There has also been a migration of people moving from London to the relatively cheaper North.  Equally, the terrible Grenfell disaster has made renters and buyers nervous about safety on cladded apartments and costs relating to it, so buying a new build with a 10 year warranty is an attractive alternative with many looking to take charge of their own destiny.

Having viewed a number of new developments myself recently, my view is that whilst garden space is often still compromised, build quality and energy credentials are superior to older properties, which makes purchasing a new build an attractive prospect. Housebuilders are placed under close scrutiny from the local planning authority, public and local stakeholders before they are granted planning permission, and this can often take years to ensure the final scheme is the best it can be.

The sales market has been at an all-time high with the pandemic boosting property demand. Recently, my husband and I decided to move but the market is showing little sign of slowing down yet. It’s a seller’s market so it’s difficult to find a property to suit our requirements at the right price. Demand is still so high, and we are discovering unless you are prepared to live in rented accommodation so you can proceed straight away, you may be unable to put a deposit down for a new build opportunity. So how long will this last?

With so many people unable to view without selling their property first, householders cannot build quick enough to keep pace with demand. The result is two-fold; firstly take up and profit will naturally be realised at a slower rate, but waiting lists and demand for plots to be released on new developments is increasing along with values.

With the end of stamp duty holiday, transactions reportedly decreased by 52% month on month. Whilst borrowing costs are still comparatively low in historic terms, interest rates are increasing making finance less available to housebuilders and homeowners alike. Less finance means people are less likely to push their limits.

With Covid restrictions lifted, people are socialising and spending money again on their lifestyle and not saving as much. Less cash to spend relatively across the population should bring affordability and house prices down.

As well as Covid, there is the aftermath of Brexit causing labour shortages and an increase in cost of materials, as well as slower distribution through the supply chain. This has impacted on housebuilder programmes with delays in releasing sites for sale.

Inflationary pressures are generally not being wage matched which will put a burden on buyers on day to day affordability with escalating costs such as utility bills significantly increasing by up to 70% or higher. The appeal of a new build is that they should be energy efficient, thus attractive to buyers keen to help the environment and simultaneously save money.

The Help to Buy scheme is available for first time buyers which has been helpful to many, however government plans to withdraw the scheme in 2023 which eliminates a good proportion of demand and thus a slow down in take up from first time buyers desperate to get on the property ladder.

In conclusion, the pandemic has played a large part in the uptake of new houses and housebuilders’ profits. With the pandemic, Partygate and the recent humanitarian crisis in the Ukraine dominating the news, attention has been taken away from Brexit, but we are already hearing from the construction industry and housebuilders that it is putting a strain on their profit and supply chain.   The housing market has always been cyclical, and I would think in the next 6 months we will see it calm down. This is my hope anyway, as we continue our hunt to find a new home!