Special Feature: New build valuations raise hope
“It has found that in the 12 months to June 2012 the price of pre-owned properties rose by an average of 2.1%, whereas at the same time the prices of new dwellings rose by an impressive 5.9%.
“This means that the increase in average new build prices in the last year has been nearly three times that of pre-owned homes, so why the discrepancy?
“At first glance the answer to this could be down to any number of factors. It may have been because builders have been pushing prices too hard, but it could also be that in the last few years new build was being priced low and so these prices rises are more a sign of increased demand.
“To someone who works closely with the new build market I believe this indicates that developers have now reached rock bottom and are now beginning to push prices back up as demand increases.
“In the eyes of the lenders this might not be considered a ‘good thing’ and if they take the view that developers are trying to ‘force’ the market then they could react with more downward valuations.
“However, there are a number of reasons that justify this increase and the differential between the two.
“The first is that as a result of financial crisis activity in the housing market has dropped off and so fewer new developments were started and therefore fewer new properties were being sold.
“Confidence in the housing market remains fragile and in the last few years we’ve seen builders and developers reduce activity levels significantly. They’ve scaled back on new developments and cut profits closer to costs, which has kept prices low.
“The disparity is also likely to be because prices on pre-owned properties have been coming down in some areas.
“With the long boom period where demand was far outstripping supply some pre-owned properties had become overvalued and prices are therefore going up slower than new build which are more accurately priced.
“This is supported by the ONS figures which reports that the average UK house prices for pre-owned dwellings was £232,000 in June 2012 whereas the average price for new homes was £216,000.
“Anecdotal evidence from developers indicates that the demand for newly built homes has begun to increase again in the last year.
“While builders can’t afford to flood the market with new properties anymore, they are starting to work on more new developments than they have been in the last few years and are building to meet increased demand.
“They are developing these new sites in a controlled way, but on certain sites they are now finding they’re even getting queues of prospective buyers lining up when new plots become available.
“There is also the no chain factor, as in today’s more fickle market not having a chain gives customers more confidence.
“Another possible reason behind this increase is also in the style of properties being built now. Pre-crisis the trend was for estates of small townhouses and apartments for multi-storey living, and to a degree the market was saturated and lenders were becoming less keen on lending on these cheaper properties.
“More recently there has been a change of mood and we’ve seen a move back towards demand for more traditional builds.
“This has meant developers are re-planning sites and more traditional style three, four, and even five-bedroom properties being built instead of these apartment blocks.
“In simple terms, larger properties are more expensive and as more of these are being built then the average price of new build is inevitably going to rise.
“These more traditional style properties are also being better ‘specced’ than they were a few years ago.
“In order to entice borrowers to choose a new build and not a pre-owned property many developers are including higher quality kitchens, bathrooms, and white goods and fittings as standard.
“There will always be a demand for new build as many borrowers prefer the blank canvas and brand new feel a new home gives them, not to mention the advantages in energy efficiency and security and guarantees you get buying a new home.
“As such after the slowdown in activity developers are working hard to entice new customers though the doors and have to invest in what customers want.
“We also cannot discount the impact of the push into assisted sales schemes that have been making buying at the lower end of the market easier in the last year.
“Schemes such as NewBuy and FirstBuy have seen numbers of interested borrowers increasing all the time and this has increased demand on new developments, which has in turn meant that prices have been able to rise.
“With this price rise differential I believe the most interesting aspect is not just that it has happened, but what happens over the next 12 months.
“At the moment LTVs on new build properties have not increased significantly giving lenders some margin and scope for manoeuvre. What happens next will depend on how they and their valuers approach new build in the light of these developments.”