New homes: new perspectives

New homes - new perspectives
 
New build buyer profiles

13 September 2017, by Savills Research

We analyse four types of new build buyer – Investors, Downsizers, Upsizers and First-Time Buyers – and investigate the types of properties they purchase, along with the popular regional markets for each

 

Why is Bristol attracting new build investors? What is the housing priority for downsizers? Which cities have the highest uptake of Help to Buy with first-time buyers?

FIGURE 3

Why buyers purchase – new build versus secondhand The percentage of Savills new build and secondhand homes sales, excluding London (2016 to the first half of 2017)

 
Figure 3

Source: Savills Research


Investors

International investors continue to seek out city-centre opportunities as an increasing number take advantage of weakening sterling. Tech hotspots, such as Bristol and Cambridge, have performed strongly, as have Manchester and Salford with their increased focus on media.

In Bristol, international investors have consistently made up 10% of the prime new build market, but in the first half of 2017 this increased to 27%, driven by buyers from China and Western Europe. Of these, 89% are buying flats rather than houses, with buyers favouring two-bedroom properties.

Restrictions to the buy-to-let sector have affected domestic investors, particularly those dependent on mortgages. Across the country, the number of mortgaged buy-to-let transactions fell by 37% between 2015 and the year to May 2017.

With their greater familiarity with smaller UK cities, domestic investors are more prevalent in places such as Norwich, Southampton and Sevenoaks, as well as Bristol and Cambridge. They’re also more comfortable with smaller units than international investors, buying one-bedroom as well as two-bedroom flats.

Government action to dampen the buy-to-let markets seems to be influencing both transactions and values. Investors in the new homes market outside London fell from being 32% of buyers in 2015 to 19% of buyers in the first half of 2017. The average purchase price for a UK investor has dropped from £296,000 in 2015 to £269,000 in 2017 – a fall of 9%. Professional and institutional investors could help plug the gap left by weaker buy-to-let demand.

Increased mortgage regulation has made the whole market more reliant on cash. In the last 10 years, the number of outright cash buyers increased by 26%, and they currently hold £138.4 billion in housing equity. Across all price points in the market, they make up 40% of buyers. Their activity has continued relatively unaffected by changes to regulation and market uncertainty.

FIGURE 4

Five-year growth in new build values £ per square foot (psf)

 
Figure 4

Source: Land Registry and DCLG (2012 values and 2017 values), Savills (Savills 2017 deals)


Downsizers

Downsizers accounted for one in five Savills new home buyers over the past four years. While older households may want to release equity in their home by downsizing, they still want room for guests and all the belongings they’ve accumulated over the years.

Developers are attracting this demographic with spacious designs. On average, downsizers moving through Savills bought a 1,100 sq ft flat with two to three bedrooms. The UK average flat size is 625 sq ft. In contrast, older people moving into secondhand properties generally bought homes with more bedrooms to give them that extra space: 67% bought houses with four or more bedrooms.

Overall, 59% of downsizers moved to urban locations, such as Norwich and Winchester. However, thoughtful rural or town-fringe developments also attract downsizers, like the Staithe Place development in Wells-next-the-Sea.

Location analysis shows that 63% of downsizers moved within a 10-mile radius of their previous home, in line with movers across the market. 37% then have moved further afield. Norfolk, Kent, and Scotland have proved popular locations.

FIGURE 5

Downsizer purchases by type as proportion of new build or secondhand sales (2015 to H1 2017)

 
Figure 5

Source: Savills Research


Upsizers

Savills buyers who are upsizing are spending an average of £567,000 for a property just under 1,500 sq ft. These buyers are mostly domestic, with 44% purchasing a home with four or more bedrooms. Tonbridge & Malling in Kent is the most popular destination for upsizers and is popular with many households moving out of London.

Growing numbers of households are leaving London to find suitable housing; out-migration from the capital was 93,000 in the year to June 2016. Of Savills new homes buyers moving out of London, 50% were upsizers.

Buyers moving out of high-value London markets will be looking to make a saving, but will still be more concentrated in the upper-end of the market. From the highest-value boroughs of London, the most popular destinations for movers are Cambridge, Oxford, St Albans, Elmbridge, and Epsom & Ewell – with buyers making a saving of £278,000 to £1.5 million.

FIGURE 6

Upsizer purchases Popular destinations and average savings for those moving out of London

 
Figure 6

Source: Savills Research using Land Registry (12 months to April 17)


First-time buyers

First-time buyers have increased their share of the new build sales market from 11% to 14% between 2015 and 2017. Many are likely to be taking advantage of Help to Buy to secure a larger property. Savills first-time buyers are buying twice as many flats as houses, at an average price of £248,000 and just over 650 sq ft.

The most popular markets for these buyers are Bristol, Southampton, Tunbridge Wells and Glasgow City. Help to Buy has been well used in Bristol and Southampton, supporting 26% and 37% of all new build sales since the scheme began, respectively. The scheme is likely to be helping younger buyers with their first step on the ladder: under-30s made up 57% of Savills first-time buyers in the 18 months to June 2017.

Markets with low levels of Help to Buy sales are usually those which are too expensive for first-time buyers, such as Tunbridge Wells, where just 13% of buyers used the scheme. In these markets, there may be an opportunity for developers to provide smaller homes, which are more affordable to first-time buyers and under the £600,000 Help to Buy cap.

Savills first-time buyers spend an average of £380psf. There is more capacity for Help to Buy-supported purchases in areas which can deliver developments at this price point, such as Chichester, Reading and North Hertfordshire.


Retirement living

As the UK’s population ages, the need for housing suitable for older people is increasingly pressing. We have identified that current supply averages 7,200 homes per year, while ONS projects the number of people aged over-75 will grow by more than 150,000 per year for the next five years.

As sectors such as student housing and Build to Rent mature, investors are becoming increasingly aware of untapped opportunities in the retirement sector.

The missing links for delivery are land and regulation. With competition for sites from other uses, it is hard for retirement developers to be competitive while still providing the high levels of community services and amenities older people need. The UK needs to look to Australia’s planning zones for retirement housing, stamp duty exemptions for downsizers, and Retirement Communities Act for evidence of how government can support the sector to meet the growing demand.

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Jim Ward

Jim Ward

Director
Residential Research and Consultancy

Savills Margaret Street

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George Cardale MRICS

George Cardale MRICS

Director
Residential Development Sales

Savills Bristol

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