Off-plan sales index 2024

In a world of higher interest rates, finding a buyer before a home is built has become increasingly important.

Published under New homes and Research — May 2024
Off-plan sales index 2024

Off-plan sales are essential for housebuilders' cash flow, bringing money into the business before homes are fully finished. But Hamptons’ annual off-plan sales index reveals that 32% of new homes sold in England & Wales found a buyer before they were built last year, the lowest level since 2013. With more homes only sold after they’re finished, it means developers are borrowing money for longer and at higher interest rates.

Higher mortgage rates have squeezed brand-new home buyers harder than most, given they are disproportionately likely to be buying their first home or borrowing more to trade up. This has pulled down the share of homes sold before completion from 39% last year.

 

With off-plan sales harder to come by, many 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.

The share of new homes sold off-plan peaked at 47% in 2016, buoyed by investors rushing to beat the 3% stamp duty second home surcharge which came into force in April 2016. Since then, landlords have become less active and consequently, the share of new homes sold off-plan has fallen in all but one year (2021). First-time buyers outnumbered investors 2:1 among off-plan purchases last year, an exact reversal of the same ratio in 2016. 

Higher mortgage rates have reversed pandemic-induced trends where buyers looked to buy bigger homes. Larger homes have subsequently recorded the sharpest falls in off-plan sales. Buyers who had been stretching themselves to trade up have sat tight in the face of higher mortgage rates to keep their monthly repayments affordable. 

Just 22% of detached homes and 31% of semi-detached homes were sold before they were built last year, marking an 8% and 10% fall respectively between 2022 and 2023.

 

Regions where new home sales are dominated by larger houses recorded the biggest fall in off-plan sales. The East of England had the largest year-on-year fall with just a quarter of new home sales sold off-plan. Flats here comprised 17% of all new homes sold in 2023, compared to 95% in the capital. 

Smaller, more affordable homes have been hit less. Forty-five per cent of flats were sold off-plan last year, down five percentage points.  For the first time since the pandemic, flats were more likely to be sold off-plan than terraced houses.             

Affordability constraints have seen flats become more popular, firmly cementing London as the off-plan capital nationally. Here, 47% of new homes were sold before they were built, down from 52% last year. This marked the first time since 2012 that the proportion dropped below 50%.

 

The upturn in the fortunes of the flat market has been led by rising first-time buyer numbers alongside a decrease in supply due to the number of flats built last year dwindling. Housebuilders shied away from building flats because of falling demand post-pandemic. Not only this, but low interest rates back then meant first-time sellers could jump from a smaller flat to larger house given their ability to borrow more at a time when borrowing money was cheaper. 

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.  However, higher mortgage rates have introduced a new barrier in the form of unaffordable repayments. This has pushed buyers towards smaller, more affordable homes that are often second-hand. Off-plan purchases require thorough due diligence. Here are some questions to ask when buying a house to consider before investing off-plan. 

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Aneisha Beveridge

Head of Research

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