The new homes market has been in decline for the last three to four years with little or no rise in house prices, whilst materials and labour costs have increased and additional costs have been introduced through higher building standards, Biodiversity Net Gain and the latest, the Building Safety Levy, coming into force for all new homes started after 1st October 2026. The Building Safety Levy itself will add an average of £3,000 to the costs, and the Future Homes Standard will increase costs even further when this is introduced from March 2027.
The Home Builder’s Federation has calculated that the average cost of building a new home has increased by £76,000 over the last six years whilst selling prices have been largely static. This has put enormous pressure on new home builder, particularly small and medium sizes builders (SMEs) to increase their house prices to cover these costs, and many firms have either gone into liquidation or reduced their operations whilst awaiting a recovery.
At the same time, bank rate and mortgage rates have increased, making it harder for first time buyers to take their first step on the housing ladder. With the cost of living rising, one of the largest obstacles for first time buyers has been saving up the required deposit to buy their first home. Those that have been able to save a minimum deposit have been penalised by having to pay a higher rate on the additional mortgage needed.
There is undoubtedly a desperate need for new homes, with an estimated 1.3 million people on local authority housing waiting lists, but the demand to buy a new home has been subdued due to affordability, uncertainty, and low buyer confidence.
New homes reservations have fallen dramatically recently, and national homebuilders report a drop of one third against the number of reservations they would normally see.
New home starts are at a low level with only circa 160,000 new homes starts anticipated over the next year. Many homebuilders have been cutting back production to match market demand, and even major housebuilders have been making losses as they have cut prices in a desperate attempt to reduce borrowings and maintain turnover.
The chance of government achieving their 1.5 million new homes target within this parliament is impossible with some forecasters predicting that they will only achieve half of this number.
Housebuilders have for some time been calling for a demand-side stimulus from the government along the lines of a previous equity loan scheme known as Help to Buy.
The initial version of Help to Buy, which was aimed at all purchasers, ran from 2013 to 2021, before being restricted to first-time buyers and then abandoned in England in 2023. Help to Buy has continued in Wales where it has just been extended for a further period.
A recent independent evaluation of Help to Buy carried out for The Ministry of Housing, Communities and Local Government (MHCLG) found it delivered “very high value for money” for taxpayers and provided a boost to housing supply that went beyond the homes sold through the scheme.
‘The two main objectives of the Help to Buy scheme were to increase access to home ownership and to boost housing supply. The evaluation found that the introduction of the Help to Buy scheme had a positive effect on both of these outcomes.’
In total, Help to Buy is estimated to have generated a Net Present Social Value of £25.1 billion, achieving ‘very high’ value for money in accordance with MHCLG’s Appraisal Guide. This includes income from equity loan redemptions and projected future income from this source.
The evaluation found that Help to Buy supported increases in new housing supply in England and that more than 280,000 new built homes, 15% of all new builds in England, built between 2013 and 2023 were attributable to the Help to Buy scheme.
Data published by the Home Builders Federation showed that more than half of all equity loans issued through the Help to Buy scheme had been paid back at the end of March 2026 at an average uplift of around 10%. In total this meant that a positive return of £1.25 billion had been generated against original values of the loans. This was supplemented by total interest income of around £500 million to date.
Critics of Help to Buy have argued that it inflated property prices, with housing developers soaking up the stimulus through price rises. However, the evaluation, overall, found that Help to Buy had minimal impact on house prices.
Prices are in any case kept in check by the prices of the second-hand market, but by their very nature, new homes are built to an increasingly high standard of energy efficiency and should rightly command a healthy premium over the second-hand market.
And so, it is with an enormous amount of relief that, following the independent findings of Help to Buy, published on 15th September, the prime minister, Andy Burnham, announced that the government will launch a new first-time buyer scheme in October’s budget.
The announcement of this new first time buyer support has already had a dramatic effect, with shares in Britain’s biggest listed builders soaring on hopes that the new scheme would ignite a wave of demand and drive up woefully low building rates.
The share valuations of the UK’s eight largest housebuilders rose by £2bn after Andy Burnham unveiled the new home loan scheme for first-time buyers.
Speaking on the eve of Labour’s annual conference in Liverpool, the prime minister committed to a new equity loan scheme for England, which he has called ‘Your First Home.’
“Too many young people are struggling with the cost of housing, with many giving up hope of ever having a home to call their own,” said Burnham. “So, we will step in to help more first-time buyers onto the housing ladder.”
Full details of the Your First Home scheme are to be announced in the Budget on 28th October, but are expected to support a minimum 2.5% deposit, backed by a 20% government-backed equity loans for prospective buyers purchasing a new build property from a developer signed up to the scheme. Developers will be expected to contribute by providing additional support, but the details of this are not yet known.
If the scheme is similar to the Help to Buy scheme, home buyers will be given an initial interest free period, perhaps 5 years, on the government’s 20% equity share, with a modest interest rate being applied thereafter.
The scheme will also set a household income cap, with local property price caps, to ensure it is targeted at those on lower incomes. The industry has warned that if the price cap is set too low, then the scheme may be ineffective.
The Ministry of Housing, Communities and Local Government (MHCLG) has said the scheme would help first-time buyers get onto the property ladder, while stimulating housing supply. This is exactly what we need.
My one concern is that if ‘Your First Home’ is not introduced swiftly, there is a danger that buyers will delay purchasing their first home until it is available and the stimulus so desperately needed will be delayed further.
This is a personal blog post. Any opinions, findings, and conclusion or recommendations expressed in this article are those of the authors and do not necessarily reflect the view of the Centre for the New Midlands or any of our associated organisations/individuals.
ABOUT OUR AUTHOR:
Clive is Chairman of K B Benfield Group Holdings Ltd and Fletcher Homes (Shropshire) Ltd, both family-owned companies engaged in housebuilding and property development.
He has been involved in construction, contracting, development and property investment for his whole life, starting as an apprentice carpenter and builder with his family firm and rising through the ranks, and he has a strong belief in training and development.
He is a past Chair of the Construction Confederation and past Chair of the CIOB Chartered Building Company and Consultancy scheme supporting integrity and professionalism in the industry.
Clive holds a BSc (Hons) degree in construction and is a Fellow of the Chartered Institute of Building, a Member of the Royal Institution of Chartered Surveyors, a Member of the Chartered Institute of Marketing a Fellow of the Faculty of Building and Fellow of the Royal Society of Arts.
