With its ambitious promises to create 1.5 million new houses over the next five years, Labour will be providing the largest boost to affordable housing in a generation.

Additionally, it aims to stop large tracts of newly built real estate from being snapped up by foreign investors and give first-time purchasers priority in realizing their ambition of owning a home. However, the removal of one segment of a market creates opportunity for others.

Starmer's property guarantee may draw in more than just first-time purchasers. It's entirely possible that a fresh wave of domestic buy-to-let investors will be attracted by this inflow of new build properties. The UK household saving ratio increased to 11.1% in the first quarter of 2024, according to recent ONS data. It has been rising steadily since decreasing to 6.6% in the second half of 2022.

The increases have coincided with cost of living pressures, weak consumer confidence and slower growth in household consumption. Whatever the reasons are, it indicates that despite the current financial pressures, there are people saving pots of money who may choose to invest it into property in the future. The opportunity to have a brand new property to generate a future income from might seem like an attractive proposition for some.

There are a number of reasons why current landlords are cutting their losses and selling up right now such as the Renters Rights Bill, the impending rise on CGT that is expected in October and the EPC requirements for rental properties. But for new landlords buying new builds, these issues will not be so daunting. The key is that if other asset groups suffer, property will remain attractive.

Beleaguered first-time buyers will still face competition for the new supply of housing – especially at the more ‘affordable’ end of the market. It’s not as if they need more competition. According to a report in the Independent, the average first-time buyer saved more than £53,000 as a deposit at the start of 2024 – around 19% of the average purchase price. So, it’s no surprise that first-time buyers find they need to save for around a decade to achieve their goal.

In April, the BSA's report, written by housing analyst Neal Hudson, suggested home ownership among younger people has been in decline over the last 20 years. First-time buyers faced the dual affordability struggle of raising a deposit to buy a home as well as paying a mortgage. Now, interest rates have come down since then but not to the extent that anyone expected – meaning that stress testing on SVRs can still present a significant block to many ‘would be’ buyers.

As far as the supply is concerned, there remain significant upward pressures on pricing. The introduction of new rules like the Bio-diversity Net Gain legislation in April this year, and the increasing costs of materials and labour are all driving the price of new build properties up, making it difficult for developers to build and stay within affordable pricing. Ultimately, affordable housing does not attract the margins for developers that executive homes do. In 2025 the Future Homes Standard will be implemented which means that any new homes built from then onwards will produce 75%-80% less carbon emissions and concerns have already been raised as to how this will affect the price of new builds.

If there is significant competition for the new stock from domestic landlords and first-time buyers alike, lenders will have to play a significant part in supporting buyers. Higher LTV lending will be important. If the Bank of Mum and Dad is hit by the budget, schemes like Shared Ownership will play an even bigger part in supporting people buying their first homes.

People often speak about the housing market as if it is binary. It’s supply or cost of finance. In truth, it is always both and addressing one without the other rarely helps the people who really need it. The current government was clear in their manifesto they had little fiscal help to offer apart from extending the Mortgage Guarantee Scheme. Unless there is more help with the cost of finance first-time borrowers may not be the sole beneficiaries of the new towns the government wants to build.

Kathy Bowes
Intermediary Manager

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