New homes: inertia easing, recovery advancing
Summary:
- New homes market: New home starts in most UK regions (excluding London) are now above their two-year averages, with some regions seeing nearly 70% higher starts in Q2 2025 compared to the previous year.
- Buyer opportunities: The use of sales incentives for new homes is rising, reflecting a more competitive market, and providing buyers with more reason to choose new build.
- Sentiment: Demand for new homes is improving, thanks to increasing confidence and a more favourable mortgage market.
- Outlook: The five-year price growth forecast has been revised up by 1.0% to 24.5%, with expectations that improved mortgage affordability and relaxed regulations will drive both price growth and increased transactional activity.
Good things take time: Supply is coming
The market has seen a difficult few years as high construction costs, labour shortages, planning delays, and geopolitically volatile economic conditions all affected the delivery of housing. The most recent Home Builders Federation (HBF) quarterly survey shows these constraints have eased to varying degrees. Sentiment around development finance and land availability has improved by an average of 43% compared to the previous year, but labour constraints have worsened year on year, continuing to present challenges, particularly for smaller builders with fewer economies of scale.
Despite ongoing headwinds, the new homes market is trending toward a gradual recovery, according to starts data from the National House Building Council (NHBC). Housing starts in Q2 2025 have picked up, with nine out of ten regions (excluding London) showing starts above their respective two-year averages. The East Midlands, East of England, and Yorkshire and the Humber had starts in Q2 2025 that were nearly 70% higher on average compared to the previous year.
Are there opportunities for buyers in the current market?
Undoubtedly yes! With limited price growth across the whole market over the last six months, coupled with falling mortgage rates, housing affordability has improved. For a buyer on a 75% mortgage buying the average-priced property, monthly mortgage repayments have fallen by around 15% compared to late 2024.
Within the new build market specifically, buyers will also see more favourable conditions. Data from the NHBC sentiment survey shows net sales values adjusting downwards since the start of 2025. Recently, this has been coupled with an uptick in the use of incentives, which climbed to the highest reading in the survey since mid-2023. For many buyers, as shown in our 2023 survey, the increased availability of incentives helps provide the impetus to choose a new build home over options in the wider market.
However, buyers will not be overwhelmed with choice, given the shrinking pipeline. While new starts are picking up, the increase is from a low base. The number of outlets run by the major housebuilders is still down 12% compared to their recent peak in 2018. A step change in supply will depend on both a greater flow of consented land and further improvement in market conditions, to give developers the confidence to open more outlets.
Slow and steady wins the race?
Increased global economic uncertainty, combined with speculation over potential changes to property taxation in the UK, has resulted in the recent softening of buyer activity. As a result, we revised our mainstream forecasts, expecting slower price growth in 2025 than previously anticipated. However, the outlook for the medium term is more optimistic. We have increased our forecast for five-year growth to 24.5%, driven by further falls in the cost of debt and relaxation of mortgage regulation that will create greater borrowing capacity for potential purchasers.
For developers, the timing of any asking price increases will be crucial, given the delicately balanced nature of the market. Positively, sentiment survey data from the HBF shows that buyer confidence, mortgage rates, and availability have all seen improvements compared to where they were a year ago. While early days, this shift in sentiment will be critical to maximising the potential of the new homes market in the years to come.
Sizing up demand
Several years after the pandemic, the 'race for space' has not abated amongst new build buyers. NHBC data shows that over the last twelve months, 39% of new build sales were properties with four or more bedrooms. This may be driven by a decline in the number of younger first-time buyers, who have historically preferred smaller flats. With the average age for getting on the property ladder now at 34, those first-time buyers who remain in the market join home movers in looking for family housing rather than starter properties.
The trend is most pronounced in Scotland and the North West, where buyers enjoy lower house-price-to-income ratios and therefore are able to stretch their budgets further to gain more space. Meanwhile, Wales and the East Midlands led the charge for the most sales for three-bed houses. The sales data shows these buyers are using their purchasing power to buy larger properties that they can live in for the long term.
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