Stamp Duty Surcharge triggers long-term slump in off-plan sales

Off-plan new build properties - at one time a solid favourite amongst landlords - are now falling out of favour with all purchasers.

Figures from lettings and sales agency Hamptons shows that the proportion of new homes sold off-plan in England and Wales has dropped to its lowest level since 2013.

A total of 34 per cent of new builds were sold before completion in 2022, down from a high of 46 per cent in 2016.

The agency says the collapse in enthusiasm is down largely to a fall in the number of buy to let landlords - until recently, the most likely type of buyer to acquire homes off-plan.

Hamptons adds that the decline dates back to 2016 and the introduction of the three per cent additional homes stamp duty surcharge, prompting investors to move away from new builds. 

David Fell, lead analyst at Hamptons, says: “Smaller new houses are now more likely to be sold off-plan than flats. This reflects Covid-induced changes alongside a shift in who is willing to buy before a new home is completed. 

“Off-plan demand has steadily moved away from investors buying two or three years in advance towards first-time buyers who are typically looking to move home within six to 12 months. The majority, however, still want to wait to see a finished product.

“Slowing rates of price growth have also reduced the incentive for some buyers to get in early. A decade ago, investors buying well in advance of completion often saw the value of their new home rise 20 to 40 per cent between exchange and completion. But as price growth has slowed, buyers have in general become less willing to commit to purchases years in advance of completion.

“Overall, the continued slowdown in the number of new homes sold off-plan coupled with the end of Help to Buy is hitting most housebuilders’ bottom lines. Slowing sales rates mean that some developers are slowing down the pace of work in order to reduce their risk.

“Without a relaunch of Help to Buy or replacement with a similar scheme, in the short term it’s likely to mean far fewer homes will be built in 2023 than there have been over the last couple of years.”