Against the odds, the UK housing market has seen a remarkable recovery since reopening in mid-May. This has been boosted by pent-up demand, the experience of lockdown fuelling people’s desire to move as well as the stamp duty holiday.

As such, the number of sales agreed across the UK in September 2020 was 92% higher than the same month last year. This increase has likewise been seen in the new build market. Reservations for Savills new build properties in Q3 2020 was the highest number ever recorded in a quarter.

But this recovery is not uniform across the country. While demand remains for city centres, with many people working from home and looking for more space, more rural markets have so far been the biggest beneficiaries of this jump in demand.

Who is buying?

In terms of who is fuelling this recovery in the market, there is a divergence between different types of buyers.

With banks shifting their focus to lower-risk lending, due to both the economic environment as well as the increase in mortgage applications, equity-rich homeowners are benefitting more over first-time buyers. The reduction in high loan-to-value (LTV) mortgage products has particularly impacted first-time buyers, with the number of 90% LTV products on the market reducing by 92% between March and August 2020.

This shift is apparent in the value of properties going under offer. The number of properties priced between £200,000 and £300,000 SSTC was 88% higher in September 2020 than September 2019. But properties over £1 million have seen more than double the uplift: 152% higher this year than last. Yet this may benefit the new build market. First-time buyers with lower deposits are likely to be drawn to products such as Help to Buy or shared ownership, particularly as the new changes to shared ownership may mean a 10% share can be bought with a deposit of just £1,550 for the average home.

CHANGES TO HELP TO BUY

The current Help to Buy scheme is ending next year. Reservations need to be submitted to agents by 15 December 2020, with legal completion by 31 March 2021 (and by 31 May 2021 for reservations made before July 2020). Homes will need to be build complete by 28 February 2021. In markets where affordability is most stretched and buyers are looking for a low-deposit route to home ownership, sales rates are likely to be sustained in the run-up to next March. Beyond then, the scheme will be restricted to first-time buyers and by regional price caps. Any ground rent on the sale of leasehold properties through the scheme will also be restricted to a peppercorn rent.

Changing preferences

The market is undoubtedly moving fast, but how far can buyers influence it? The experience of lockdown has led many to reassess their work-life balance as well as what they’re looking for in a home. The new build market could be well placed to adapt to this shift in changing preferences.

With more people working at home, over half of respondents to our buyers’ survey in August specified that a separate space to work from home has become more important to them. This increased to 84% of respondents aged under 40.

Flexibility will be key in design moving forward to allow spaces to adapt when needed. This will be particularly important in smaller family homes and flats where multiple family members may need separate space at the same time.

Unsurprisingly, an appreciation for outside space has also become more important to buyers. More than three-quarters of survey respondents with school-age children specified it has increased in prominence for them.

Integrated green space within developments, particularly in more urban centres, is likely to be a key driver for buyers going forward.

Similarly, buyers are now more willing to move further afield to more rural markets. This trend is already being seen in the markets that are seeing the greatest increase in agreed sales (see map) and buyers of Savills new build homes since lockdown have moved 7% further than those who bought last year. The quest for more space inside and out has seen the proportion of Savills new build buyers who are upsizing jump from 34% of the market in 2017 to 50% in the first half of this year.

What happens next?

There is no doubt the housing market has seen significant recovery since lockdown, but can this momentum be sustained? While agreed sales have increased across the UK, so have price reductions – suggesting the market is price sensitive. And on a weekly basis, the rate of growth in sales has started to slow. Despite slowing, demand is likely to be sustained throughout the first part of next year in the run-up to the end of the stamp duty holiday, and towards the deadline for Help to Buy completions under the current criteria. This is likely to be in the face of a harsher winter economically with the ending of the furlough scheme and returning uncertainty around Brexit.

Beyond that point, the strength of the economy is likely to become more relevant to the housing market again. Though if banks continue to be risk-averse this may continue to benefit the lower end of the new build market, especially for those able to use Help to Buy and shared ownership.

The restriction of construction activity in April and May means that we expect the overall supply of new homes in England in the year to March 2021 to be between 15 and 20% lower than this year. That points to an ongoing undersupply of housing in some markets, notably those in London and the South of England which are most stretched in terms of affordability. And low levels of new schemes starting construction this year suggests that shortfall is likely to continue in the medium term.