UK Housebuilders Offer Freebies to Attract Buyers Amidst Rising Borrowing Costs
UK housebuilders are resorting to offering freebies such as free cars and home loan contributions in an effort to entice buyers as soaring borrowing costs dampen demand. Data compiled by RBC Capital Markets and seen by Bloomberg News reveals that one in five new homes for sale at the end of October were advertised with incentives, marking a significant increase from fewer than one in ten over the past decade.
Anthony Codling, a housing analyst at RBC Capital Markets, explains that these incentives are used when housebuilders are keen to accelerate sales and reduce costs by selling the remaining few homes on a site. In a hot market where homes are selling rapidly, such incentives are unnecessary. However, the current challenging market conditions, characterized by costly borrowing and a cost-of-living squeeze, have led to a decline in first-time buyer sales as individuals opt to stay in rental properties rather than take on mortgages.
Forecaster EY Item Club predicts that UK home loan lending will record decade-low growth in 2023 and next year. This gloomy outlook has prompted homebuilders to offer attractive sweeteners to boost sales. Hayfield Homes, a luxury developer near Birmingham, recently enticed prospective buyers with discounts of up to the value of a £42,990 ($71,894) Tesla car, alongside other incentives such as stamp duty contributions, moving costs, and estate agency fees.
Even the country’s largest homebuilders are joining in on the trend. Taylor Wimpey has increased incentives to 5% of the house price, compared to around 2% in 2022. The company now offers mortgage contributions, deposit help, and personalized home upgrades, including kitchen counters and carpets. Barratt Developments, on the other hand, launched a ‘Rent-then-Buy’ program in September across the south-east of England, where house prices are falling faster than in other regions. This scheme allows first-time buyers to let the property for six months while their payments gradually build up from an initial 2.5% deposit to 5%.
Despite the rise in incentives, the percentage of new homes advertised with such offers has slightly decreased since early August, dropping from approximately 25% to just over 20%. This can be attributed to the gradual decline in mortgage costs from the 15-year high reached over the summer, aided by a double pause in interest rates from the Bank of England.
In a promising turn of events for developers, the opposition Labour Party has pledged to accelerate the country’s sluggish planning system and construct 1.5 million homes over the next term of Parliament. This commitment may boost sentiment within the industry.
While the new-build market remains stable, albeit with low volumes, the situation is not worsening, according to RBC’s Mr. Codling. Housebuilders are adapting their strategies to navigate the challenging landscape and continue to attract buyers despite the adverse conditions.
More detail via The Straits Times here… ( Image via The Straits Times )