"With buyer demand now on the up and new-build values remaining robust, we expect to see more housebuilders utilise the full range of weapons within the specialist finance arsenal over the coming year, in order to bring more homes to market and capitalise on this improving market sentiment"
- Thomas Cantor - West One Loans
The cost of new homes is increasingly outpacing the expense of the materials and labour required to construct them, creating broader margins for developers, according to new findings from West One Loans.
According to the firm, the average price of a new build has jumped 42.0% over the past three years. By comparison, material costs have risen just 8.5% during that time, while labour costs have increased by 17.8%.
Finance options gaining ground
As construction and labour costs climb more gradually than property values, some developers are turning to alternative forms of finance to fund projects and potentially increase returns.
One option is bridging and development finance, which can be used to refurbish or construct properties ahead of a sale or mortgage arrangement.
The current rate of house price growth suggests that builders may be able to recover development costs relatively quickly.
2024 sees sharp increase in new build values
New build prices rose sharply last year, increasing by 28.8%. In contrast, material and labour costs edged up by just 1.3% and 4.8%, respectively.
Price rises in the two years prior were more modest, yet still contributed to a widening gap. Between 2022 and 2024, material costs climbed just 1.2%.
“The nation’s housebuilders have had to contend with a turbulent landscape in recent years, not least due to increasing interest rates, high material costs and increases to labour costs, all driving up the sums required to break ground and deliver new homes to market," explained West One Loans' co-head of short-term finance Thomas Cantor.
“However, at the same time, we’ve seen the value of new-build homes also climb and by substantially more versus the cost increases seen in materials and labour, demonstrating that the new-build sector remains a very profitable endeavour for those who can negotiate the challenges it poses.
He added, “No surprise then, that we’ve seen a greater reliance from the nation’s housebuilders with respect to specialist finance products, with bridging, in particular, proving a crucial tool that allows them to negotiate any unforeseen cost increases and push on with their development plans.
“With buyer demand now on the up and new-build values remaining robust, we expect to see more housebuilders utilise the full range of weapons within the specialist finance arsenal over the coming year, in order to bring more homes to market and capitalise on this improving market sentiment.”
