UK Housebuilders Offer Freebies to Attract Buyers Amidst Stagnant Demand
UK housebuilders are resorting to offering freebies such as free cars and home loan contributions in an attempt to entice buyers as rising borrowing costs dampen demand. According to data compiled by RBC Capital Markets and seen by Bloomberg News, one in five new homes for sale at the end of October were advertised with incentives, compared to less than one in ten over the past decade.
Anthony Codling, a housing analyst at RBC Capital Markets, explained that incentives are used when housebuilders are eager to accelerate the sales rate and sell the last remaining properties to reduce costs. The surge in borrowing costs and the squeeze on cost of living have created challenges for UK households, resulting in a decline in first-time-buyer sales as prospective homeowners choose to stay in rental properties rather than take on mortgages. A report published by forecaster EY Item Club on Monday predicts that UK home loan lending will witness the slowest growth in a decade in 2023 and the following year.
Luxury developer Hayfield Homes, based near Birmingham, has been offering prospective customers discounts equivalent to the value of a £42,990 ($52,615) Tesla car, as well as other incentives such as stamp duty contributions, moving costs, and estate agency fees. Aynsley Lammin, a building and construction analyst at Investec, highlighted that the end of the government incentive program Help-to-Buy and the overall affordability issues, particularly for first-time buyers, have intensified the demand decline for new houses, prompting housebuilders to focus on cash.
Major UK homebuilders are among the companies providing these incentives. Taylor Wimpey Plc announced that incentives this summer accounted for 5% of the house price, compared to approximately 2% in 2022. The company’s incentives include mortgage contributions, assistance with deposits, and personalized home upgrades. Barratt Developments Plc launched a ‘Rent-then-Buy’ program in September in southeast England, where house prices are falling more rapidly than in other regions. The scheme enables first-time buyers to rent the property for six months while their payments accumulate from an initial 2.5% deposit to 5%. Barratt expressed its focus on revenue generation in the coming year through a “targeted use of incentives.”
Although the percentage of new homes advertised with incentives has slightly decreased since early August, dropping from approximately 25% to just above 20%, mortgage costs have gradually declined from the 15-year high seen over the summer, aided by the Bank of England’s decision to pause interest rates twice. Additionally, the opposition Labour Party’s promise to expedite the country’s sluggish planning system and construct 1.5 million homes over the next parliamentary term may boost developer sentiment.
RBC’s Codling stated that the situation is not worsening and that the new-build market is operating in a stable, albeit low-volume, environment.
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