While nearly all the national house price indices show that the annual rate of house price growth is slowing quickly in early 2023, our analysis of the latest mortgage valuations shows that price growth is slowing much more sharply for older homes than it is for comparable newer homes.
Homes built since the 1990s have continued to increase in value over the last 12 months, with 'nearly new' homes recording the strongest growth. These are likely to have been bought by perhaps their second or third-ever owner. On the other hand, we've recorded a small fall in the value of properties built during the 1980s or earlier.
Despite this, the ‘period premium’ tends to outweigh the ‘newbuild premium’. On a £psf basis, older homes still tend to command higher values than those built more recently. However, the gap has been closing. Over the last 12 months the value of the average Victorian home has fallen from £449psf to £432psf, while the value of a comparable home built during the 2010’s in the same location has increased from £371psf to £390psf.
This means that the average Edwardian, Victorian or Georgian home now costs 19% more on a £psf basis than a comparable home built since the 1990s in the same location, down from a pre-Covid average of 27%. This has been driven by climbing values at the top of the market. Today, 3.1% of homes built during the 2010’s are now worth seven figures, more than double the 1.5% which were five years ago.
These changes have been driven by a combination of factors, some more recent than others. And while buyers won’t stop paying a premium for the charm of a rambling Georgian townhouse overnight, there are some indications that attitudes are changing and we’re perhaps heading for much closer pricing parity in the medium term.
First off, and perhaps most obviously, is the willingness among buyers to pay a little more for a home which is likely to reduce their utility bills. 82% of new or nearly new homes last year carried an A or B EPC rating - with half the B rated homes coming with the potential to reach A. While energy bills look likely in the short to medium term to come down from late 2022 highs, they still stand close to double pre-Covid norms with many commentators expecting them to find a higher ‘new normal’ than households have long been accustomed to.
Secondly, the suburban nature of many new housing estates has worked in the favour of new homes over the course of Covid. A combination of the extra home working space they typically offer for the increasingly established world of hybrid working alongside the willingness of buyers to stretch their commute and therefore search area has benefitted some of the bigger housebuilders in particular.
And these larger suburban homes with higher capital values are likely to increasingly dominate housebuilder sales over the course of the year. The ending of Help to Buy coupled with higher mortgage rates will at least, in the short term, mean housebuilder’s sales are dominated by the middle to top of the market. These homes tend to be bought by buyers with a sizeable deposit, grown from equity they’ve built up over 10-20 years of homeownership.
So where next? It’s quite possible that the ‘period premium’ and ‘newbuild premium’ could one-day in the not-too-distant future cancel each other out. The cost of fully retrofitting a home to make it as efficient as a newbuild has risen substantially over the last two years, while the cost of modernising or extending the living space has increased even further. The price of building materials and labour have both risen much faster than the headline rate of inflation, while the incentive to upgrade has steadily grown.
But even as inflation is tamed and this figure stops rising (although it’s very unlikely ever to fall back to where it was), efficiency improvements to green technologies which are installed as standard in new homes will continue to extend the energy saving benefits of buying new. And as the number of new homes which generate more energy than they use slowly rises, in the longer term, dynamic energy pricing means homes may begin to be valued on their potential to store and then sell meaningful amounts of energy back to the grid at the times of the day when it’s most in demand.
