The new homes market has seen a slowdown in buyer demand, like the wider housing market, as the new interest rate environment and removal of the Help to Buy (HtB) scheme take effect. Average sales rates as reported by two major housebuilders dropped to 0.3 sales per outlet per week in August 2023, down from 0.6 in September last year, despite many developers offering incentives to encourage sales.

The market is unlikely to become oversupplied however, as government data from DLUHC confirms that private new home starts and completions are down 18% and 17%, respectively, in Q1 2023 vs 2022 levels. SME housebuilders cite rising materials costs and wage inflation in August’s Federation of Master Builders survey, with almost half reporting that business profits are lower than expected or at a loss as a result.

But not all parts of the new homes market are in decline. Needs-based buyers, including first-time buyers who are keen to get out of the undersupplied rental market, continue to transact. And a growing proportion of buyers are using cash, as revealed by Savills regional new homes exchanges for H1 2023.

Additionally, purchasing new build as an investment property remains a popular choice for buyers, making up almost a quarter of exchanges in the first half of 2023.

Savills dealbook data shows that there has been an adjustment in pricing, with the average £ per sq ft falling by -4.6% compared to 2022 values. This is in line with the falls seen in the wider UK market. The average achieved value has remained steady at 98.5% of asking price, demonstrating that there is still a strong market for correctly priced stock.

Who is buying new build in 2023, and why?

We surveyed over 200 Savills clients in August 2023, who had either recently bought a new build property or were researching their future new build house move. Comparing this with our own sales data reveals that there are two key buyer groups still active in the new homes market.

1. Cash-rich downsizers

A cash-rich, older group of buyers are taking up a larger share of the new homes market. 40% of exchanges by Savills regional new homes in H1 2023 were to cash purchasers, up from 29% in 2022. A further 18% plan to use cash specifically once their previous property sells. This is in line with a greater use of cash across the entire market, as those who have the flexibility to avoid using costly debt do so. Downsizers are also an increasingly important part of the new build sales market, making up 15% of sales made in H1 2023, up from 10% in 2022. 70% of survey respondents whose motivation to be in the market was to downsize said that they would fund the purchase entirely by cash, with over three quarters of downsizers aged 60 and over.

Low maintenance

Ease and convenience are major drivers, with low maintenance the primary reason for choosing new build for over 80% of downsizers. The energy efficiency of the property was a key priority for 61% of buyers. This suggests that opting for new build is an active decision for downsizers, rather than one born of necessity. However, if the second hand sales market continues to slow, the convenience of being chain-free could become a growing attraction for new build; it is already cited as a benefit by 28% of the downsizer buyer group.

Family first

58% of downsizer respondents said that proximity to family was either their 1st or 2nd priority when considering the new home’s locale, with proximity to local shops also scoring highly (53%). This contrasts with upsizer respondents, who placed proximity to a park or open space as one of their top requirements.

Country escape

42% of downsizer respondents said their location of interest was a rural or coastal area, while a further 36% were opting for a town location. 60% said they were specifically after a house rather than a flat, with the majority with a minimum outside space expectation for a private garden (63%). This corresponded with larger budgets to play with - 62% of downsizers were looking at new build homes from £500,000 upwards.

2. Budget-conscious first-time buyers

Perhaps more surprising is the resilience of the first-time buyer (FTB) in the new homes market. 24% of exchanges by Savills regional new homes in H1 2023 were to FTBs, in line with the average since 2020. Despite rising mortgage rates, first-time buyers have been able to adapt to the new conditions by compromising on property or location, or asking for support, as revealed by our survey.

Location, location

First-time buyers have had to forego their desired postcodes in light of recent interest rate rises. 75% of first-time buyer respondents said recent market conditions created some compromise on location, 45% of which said significantly. 70% of our first-time buyer respondents said they were looking for a city-based location, with 17% looking in the capital. Connectivity to a train or tube stop was most important when considering a new build’s location, followed by proximity to place of work as these younger buyers establish their careers.

Quality over size

First-time buyers were less likely to say that they had compromised on the specification of the property than the size, in light of recent interest rates. 41% of first-time buyers said they had made a significant compromise on size, much higher than any other buyer type. This suggests that FTBs are willing to consider smaller-sized properties but are perhaps actively choosing new build over second hand for the superior specification often available. Over half of first-time buyers are looking for a flat, with 94% of budgets under £500,000. This group will continue to be very price sensitive, although the cuts in mortgage rates in August from the major lenders will have provided some relief.

A helping hand

57% of first-time buyer respondents said that increased interest rates and cost of living has had an impact on asking for financial support from family or clubbing together to buy. This is in stark comparison to just 3% of our downsizers. Almost a third of first-time buyers ranked developer incentives or the Help to Buy scheme in Wales as one of their main reasons for choosing new build.

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