Sales of new homes are highly sensitive to interest rates, because almost all are bought either by owner-occupiers requiring mortgages or as investments by landlords on interest-only mortgages. Sales tend to fall as soon as interest rates rise.
Developers are also worried by a short-term slump in sales because in many areas they have long-term “pipelines” of homes at various stages of completion. About 2,500 homes are under construction in Birmingham and more than 2,200 in Leeds; Liverpool has seen 2,000 homes built or finished since last autumn; and in Greenwich, southeast London — identified by the government for significant housing growth — 11,000 homes are being built or are ready to start. As a result of this large supply, prices for new homes have risen more slowly this year than for comparable established homes. New-build prices fell each month from May to July, according to www. smartnewhomes.co.uk, and despite a small rise last month, typical prices for new homes are lower now than they were in April.
“There’s no point denying that the market is softening, so buyers will get a sympathetic ear from any sensible developer,” says Pierre Williams of the House Builders Federation.
He believes prices are unlikely to be significantly reduced publicly, but admits that most developers have building programmes that were planned when the market was stronger. “If you want real bargains, there are three key times in the cycle of a development when a canny buyer will get the best value for money when the market is slightly weaker,” he advises.
First, buy just as work starts on a site. Builders want quick sales to reassure financiers that a scheme is viable, so they will often offer extra fixtures and fittings.
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Second, buy when a development is finished and nearly sold out. Builders want to cut security and advertising costs, so they will do a deal to dispose of the final units.
The third time is more difficult to identify, “but it’s how professional investors secure the best deals, especially when the market is dipping a little”, says Williams. “Developers live or die by producing good sales figures to show shareholders and the banks at the end of each financial quarter or financial year. Developers often try to boost sales dramatically in the few weeks before these critical dates, so they’ll do the very best deals with buyers at these times.”
But developers use different financial calendars. Sometimes different regions of the same company use different dates. “The way to find out is to ask the sales manager outright — it’s what the professional investors do,” says Williams.
Some developers do not formally cut prices or give incentives, but are open to offers. Galliard Homes says it will strike “sensible deals” on flats at Tea Trade Wharf, a development in Bermondsey, south London, that have been on sale for more than six months.
Developers are eager to attract first-time buyers, who have been pushed out of the market in the past six months. First-timers Ayaburr and Husnara Ali began looking around London for a home at the start of the year. They could afford the £164,000 apartment they have bought at the Priory Place development in Thamesmead only because the builder, Barratt Homes, paid the deposit. “My wife and I had been living in rented accommodation on the Isle of Dogs for about a year. The 5% deposit was a great help to us,” says Ayaburr, who also negotiated upgraded carpets and bathroom and kitchen tiles.
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But some analysts advise buyers to wait a little longer if they can. “It’s going to be a quiet period, with fewer sales and slowing price rises. We’re expecting another interest rate rise in November ahead of the chancellor’s budget,” predicts Alex Bannister, Nationwide’s group economist. He says this will be triggered by continued high consumer spending rather than a surge in house prices, but it may create the need for extra incentives from developers.
Richard Donnell, head of research at FPDSavills, says that autumn will see the start of a “low-turnover era of fewer sales than we’ve seen in recent years”.
If buyers keep their nerve, there may be more offers to come.
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