Fewer than half of new homes sold in London last year had been bought off-plan, the first time this has happened since 2012, Hamptons research shows.
Higher mortgage rates have squeezed brand-new home buyers harder than most, given they are disproportionately likely to be stretching themselves to buy their first home or borrowing more to trade up.
This has pulled down the share of homes sold before completion to 47% in 2023, down from a peak of 72% in 2016.
David Fell, lead analyst at Hamptons, said: “Off-plan sales are the foundation of most housebuilders’ businesses. This means selling fewer homes before they’re built is bad news for their bottom line. In what’s a cash-intensive business, housebuilders typically borrow to build homes, paying it back when they’re sold. But with more homes only sold after they’re finished, it means developers are borrowing money for longer and at higher interest rates.
“With off-plan sales harder to come by, housebuilders have responded by slowing build rates to preserve capital and ensure they’re not left with large numbers of unsold finished homes. This means the government is unlikely to get close to hitting its house-building targets until interest rates drop back considerably and demand picks up.
“In a world of low-interest rates, incentives that cut the size of the deposit were the magic bullet to help buyers into homeownership. Even buyers with a 5% or 10% deposit found mortgage repayments were much cheaper than renting a similar home. But higher mortgage rates have introduced a new barrier in the form of unaffordable repayments and have pushed buyers towards smaller, more affordable homes that are often second-hand.”
For the first time since the pandemic, flats were more likely to be sold off-plan than terraced houses.
