The share of new homes sold before construction in England and Wales has dropped to a decade-low of 32%, the lowest since 2013.
Hamptons’ annual off-plan sales index reveals that only 32% of new homes sold last year were bought before construction was complete. This drop, from 39% the previous year, highlights the impact of higher mortgage rates on new home buyers, who are often first-time buyers or those looking to upgrade. These buyers are more likely to be stretching their finances, making the increased costs of borrowing a significant barrier.
Andrew Harvey, 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.”
The shift away from off-plan sales has been stark in London, where fewer than half of new homes were sold before completion last year for the first time since 2012. The percentage dropped from 52% in 2022 to 47% in 2023. Flats, however, bucked this trend, with 45% sold off-plan, making them more likely to be sold before completion than terraced houses for the first time since the pandemic.
Regions dominated by larger homes, such as the East of England, saw the most significant drop in off-plan sales. Just 22% of detached homes and 31% of semi-detached homes were sold before completion, an eight and ten percentage point fall respectively between 2022 and 2023.
The decline in off-plan sales affects housebuilders’ cash flow, leading to slower build rates and fewer homes being completed. This will impact the government’s house-building targets, as the demand for new homes is expected to remain low until mortgage rates drop.