Profits boom for housebuilders, but how long 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, yet many businesses have been negatively impacted by Covid and Brexit. So why have housebuilders benefited and how long will their profits surge 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 budget 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 as bedrooms doubled up as offices and homeowners embarked on extension projects to create new office space.
These factors all combined and prompted many people to extend or move.
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 usually superior to older properties.
Recently, my husband and I decided to move but the market is showing little sign of slowing. 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?
Housebuilders cannot build quick enough to keep pace with demand and waiting lists and demand for plots to be released on new developments are increasing along with values.
Whilst borrowing costs are still comparatively low in historic terms, interest rates are increasing making finance less available to housebuilders and homeowners alike. With Covid restrictions lifted, people are spending money again on their lifestyle. This should bring affordability and house prices down.
Brexit has caused labour shortages and an increase in cost of materials and this has impacted on housebuilders with delays in releasing sites for sale.
Inflationary pressures are generally not being wage matched which will put a burden affordability for buyers but a new build should be energy efficient, thus attractive.
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 will eliminate a good proportion of demand for new homes.
In conclusion, the pandemic has played a large part in the uptake of new houses and housebuilders’ profits.
With this, partygate and the war in Ukraine dominating the news, attention has been taken away from Brexit, which is putting a strain on developer profit and the supply chain.
I would think in the next six months we will see the market calm down. This is my hope anyway, as we continue our hunt to find a new home.