The popularity of off-plan sales of new homes in England and Wales declined significantly last year, reaching the lowest level since 2013, according to a report by Hamptons.
Off-plan sales accounted for 34% of all new homes sold in 2022, a noticeable decrease from the 46% peak observed in 2016.
This marks the fifth year in the past six where the proportion of new homes sold off-plan has fallen.
The report attributes this decline largely to a decrease in investor purchases, a trend that can be traced back to the introduction of a 3% stamp duty surcharge on second homes in 2016.
In 2015, 70% of off-plan buyers were investors, but this figure plummeted to just 21% in 2022. Conversely, first-time buyers accounted for over two-thirds (67%) of off-plan purchases last year.
Historically, flats formed the majority of off-plan sales, offering attractive yields for investors buying into developments well in advance of completion.
However, the reduced investor interest has led to fewer off-plan flat sales. The share of flats among all new homes sold off-plan dropped from 71% in 2007 to 38% in 2022.
For the first time since at least 2007, new terraced houses (46%) were more likely to sell off-plan than flats (44%).
The North West of England, with 45% of new homes sold off-plan, overtook London (44%) as the off-plan capital of the country, as buy-to-let investors seeking higher yields remain active in the market.
David Fell, lead analyst at Hamptons, said: “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 6-12 months. The majority, however, still want to wait to see a finished product.”
Fell also noted that the combined impact of the continuing slowdown in off-plan sales and the end of the Help to Buy scheme is putting pressure on housebuilders’ bottom lines, leading some developers to slow down the pace of work to mitigate risk.
“Without a relaunch of Help to Buy or a 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,” Fell concluded.
