As the dust has settled following Labour’s first Budget in 14 years, Neil Knight divisional director at Spicerhaart Part Exchange & Group Clients, takes a closer look at what impact this will have on housebuilders as we move into the new year.
With a new Labour government that is focused on getting Britain building and attempting to answer longstanding issues around housing supply, 2025 could certainly be a busy year for housebuilding. Recent decision-making, along with the Chancellor’s maiden Budget has given us a glimpse of the potential roadmap for the year ahead, in terms of potential funding, schemes and changes to planning.
But with the Budget’s impact on mortgage rates, overall borrowing and inflation still likely to be felt into 2025, what does this all mean for housebuilders and the sector as a whole?
Increasing supply
Following its pledge to build 1.5 million homes, the Chancellor announced £5billion in funding set to be invested in 2025-26. This includes £500million for the Affordable Homes programme to build up to 5,000 additional affordable homes and £128million in support for new housing projects across the country.
What may prove most supportive though is £3billion of funding through housing guarantee schemes. This is aimed at SME housebuilders and the build-to-rent sector to provide access to lower-cost loans. Given the higher costs to build and borrow, access to inexpensive loans will certainly help to unlock new projects in 2025, while their repayment will hopefully help to stimulate further support or investment in the housing sector.
Previous funding of £3billion to the Affordable Homes Guarantee Scheme aimed to deliver 20,000 new homes, so it’s not unreasonable to expect this tranche to have similar targets. While hugely positive, it does still beg the question of how they will deliver the rest.
We were disappointed not to see more incentives or greater relief for brownfield development, given its potential to contribute considerably towards the housebuilding target in the coming years. While funding for local councils was announced prior to the Budget, further support for developers would have been welcome.
Will they get close to their target? It does seem unlikely, especially as no government in recent history has managed to hit a housebuilding target. However, there does at least appear to be a real desire to get these units out of the ground.
Unblocking planning
More answers could come in the Phase 2 Spending Review in the spring, which is also when the government’s 10-year infrastructure plan is due to be published, setting out its approach to the likes of transport, schools and housing. 2025 will also see the Planning and Infrastructure Bill which is set to build on changes to the National Planning Policy Framework to overhaul current planning rules.
The Chancellor has confirmed £50million in funding to help expedite the planning process, including the recruitment of 300 junior planning officers to increase capacity in local authorities. Funding has also been allocated to unblock sites stuck in the system, or those delayed due to nutrient neutrality issues. This will certainly be welcome for many housebuilders.
Lack of support for buyers
One criticism levelled at the government has been a lack of support for buyers now. Increasing supply is certainly important, but given the challenges around affordability – particularly for first-time buyers – more tangible support is needed in 2025 to keep housebuilding and the wider property market moving.
No permanent change or a lack of extension to stamp duty relief is a key example, adding further costs for first timers, but also movers and downsizers. While likely to create demand for housebuilders, the threshold change at the end of March could also create a potential bottleneck, as buyers put pressure on an already slow house buying process to push through their move.
Key incentives such as assisted move and part exchange will be hugely beneficial to both builders and borrowers, as will the right partners to execute this strategy efficiently and deliver value. With no sign of a return of Help to Buy either, builder-led incentives will continue to play an important role in encouraging enquiries and interest, particularly given the fallout from the Budget and its impact on mortgage rates.
Budget ramifications
The instant reaction was an unsettling of swap rates, pushing lenders to re-price products. With markets already pricing in the subsequent cut to the bank base rate, it wasn’t enough to see mortgage rates come down. While we have since seen some positive movement from lenders, a rise in inflation is likely to slow the pace of any further rate cuts.
On the positive though, the consensus remains that the overall path of interest rates will continue downwards in 2025, albeit slower than previously anticipated. For the meantime, the mantra for housebuilders is still arguably control what we can control. In lieu of government support, we must do all we can to make properties as accessible as possible for buyers, all while taking advantage of any scheme or support to help minimise our own barriers to build.
In our conversations with developers and housebuilders, we’ve been hugely encouraged by how receptive and proactive they have been in maximising opportunities – particularly by incorporating a dedicated part exchange and assisted move facility to support buyers.
