LSL New Build Index. The market indicator for New Builds September The New Build Housing Market

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1 LSL New Build Index The market indicator for New Builds September 2018 In the year to end Aug 2018 new build house prices rose on average by 5.1% across the UK which is down on last year s figure of 9.8% The New Build Housing Market We have looked at the most recent annual house price change data from three leading indices: Nationwide, HM Land Registry / ONS and LSL Acadata. The results are shown in the table below where HM Land Registry / ONS data is used to show the average house price at regional level from the 2007 peak and the latest average price. The next column shows the percentage change from this peak to present and the final column shows the average house price change over the past year as derived from the above mentioned three indices. Whilst there are some quite significant differences between the reported price rises for each region, the picture is clearly one of a wave that has now spread out to the regions from London where prices are now around 60% above the level they were at in The adjoining regions of East and South East have seen growth approaching 40% and moving further out the South West, East Midlands and West Midlands have seen growth close to 20%. The North West and Yorkshire and the Humber are only experiencing house prices that are 5 to 10% above that seen in the last boom and the most Northerly region, North East is still nearly ten percent below the previous peak. At present, based on the average figures, no region is presently seeing negative price change. The East and West Midlands are the strongest English regions, whilst other regions are either cooling down or showing some slow signs of growth

2 PEAK LATEST AVE PRICE % CHANGE FROM PEAK % CHANGE AVE North East 139, , North West 152, , Yorkshire and The Humber 150, , East Midlands 158, , West Midlands 165, , East 210, , London 299, , South East 239, , South West 212, , The August 2018 RICS Residential Market Survey mirrors the above price data and reports strong markets in terms of sales volumes and price rises in Scotland and Northern Ireland. Across the UK as a whole new sales instructions have dropped, but activity is expected to be stronger away from the South of the country. The long view Previous comments have been made within the house building industry of the effects of Brexit on the supply of labour. The Bank of England carries out stress tests to see how the larger banks would cope with extreme economic / financial circumstances. In this context they have pessimistically calculated that a worst case Brexit scenario could possibly lead to: increasing interest rates, a falling exchange rate and house price falls. But of course this is what could happen in a worst case scenario, as oppose to an actual projection. As Mark Carey put it Our job, after all, is not to hope for the best but to plan for the worst. Given that it is now ten years since the financial crash, it is perhaps worth doing a quick then and now comparison of various economic variables. Households are worse off in real terms now than they were ten years ago. The ONS monthly wages and salaries survey shows that people have one or two percent less buying power than they did a decade since. The traditional view is that economic growth spreads prosperity. It took 5 years to recover from the crash and the latest data shows that GDP is now around 11% higher than it was in The unemployment rate went from around 5% in 2008, up to over 8% in 2011 before reaching a record low of 4.3% at the back end of This recovery has been driven by the service sector but production and manufacturing are still below their 2008 levels. The First Time Buyers - Affordability. 2 BED 70 SQ.M STARTER HOME AVE ANNUAL EARNINGS FULL TIME EMPLOYEES HPE AFFORDABILITY INDEX East Anglia 248,157 33, East Midlands 138,381 27, Greater London 488,522 39, North East 115,228 27, North West 141,630 28, Scotland 154,059 29, South East 258,100 35, South West 195,381 29, Wales 131,241 27, West Midlands 175,586 28, Yorkshire and the Humber 131,874 27, Average This is based on a weighted calculation which reflects regional differences in sales volumes of flats and terraced property. Ave annual earnings from ONS EARN 05: Average Gross Earnings of Full Time Employees.

3 Official Bank Rate (OBR - a measure of interest rates) had been running at around 4 to 5% up to 2008 at which point it fell to 0.25% from which it is only just beginning to recover. Notwithstanding ongoing fluctuations, RPI inflation has remained around 2 to 3% over the decade. It s clear that mortgages are more difficult to get in 2018 than they were a decade earlier and as noted below, this is particularly the case for high loan-to-value (LTV) loans. Data from the Bank of England and Building Societies Association shows that immediately before the crash in 2007 there were 1,259,470 house purchase mortgage approvals, in 2017 there were 796,216. Most people would agree that the next year will be the most important one for the country since the financial crash. The house building industry recovered from the wreckage of the crash and in recent years has been enjoying record levels of profits. Whatever else happens, there will still be a housing shortage that all political parties want to tackle and people will still need to move home. But as Help to Buy winds down, the industry may wish to consider business models that allow them to keep building in more adverse circumstances. Current News A recent report by Lichfields, a planning and development consultancy, found that the house building industry in England and Wales is now worth 38 billion per year and supports nearly 700,000 jobs. The benefits from house building extend to jobs, tax payments, infrastructure development and the provision of social housing. So there is no doubt that a healthy house building industry can help to underpin a healthy economy. The House Builder Federation has also published some data in which the Help to Buy scheme is described as an unmitigated success. In the five years between April 2013 and March 2018, 170,000 homes have been purchased through the scheme and of these more than four in five have been first time buyers. The HBF identifies the difficulties that the market is having in providing high loan-to-value mortgages. Just 3.3% of new lending in Q was at LTV of 90% or above. New builds are reported to account for 15% of mortgaged housing market transactions compared to a long run average of 8.2%. 3,000 builders, both large and small, are now registered with the scheme. Other recent good news is evidence of a bounce back in the construction sector, follow concerns about a weak start earlier in the year due to weather conditions. The ONS data series Construction Output in Great Britain: July 2018 and new orders April to June 2018, details a 3.3% increase in construction output in the three months to July Notably the month on month series increased by 0.5% and was driven by a 4% increase in new private housing work. However having said that, there has been a marked fall in New Housing, new orders in Q which presumably reflects a wait and see attitude by the industry to the present levels of economic uncertainty. When the Brexit deal is signed-off the whole industry will undoubtedly breathe a collective sigh of relief!

4 Average New Home Prices Period September 2017 to August Detached Flats Semis Terrace North/South Average % Change SCOTLAND NORTH % AVERAGE SOUTH % AVERAGE 292, % 4.47% 167, % 11.64% 186, % 6.00% 216, % 6.87% NORTH WEST NORTH EAST 346, , , , , , , ,905 WEST MIDLANDS YORKSHIRE & THE HUMBER 366, , , , , , , ,465 WALES 276,049 EAST MIDLANDS 330, , , , , , ,192 SOUTH WEST GREATER LONDON SOUTH EAST EAST ANGLIA 393, , , , , , , , , , , , , , , ,366

5 Notes This Index has been prepared by e.surv using anonymised data based on a proportion of all new build valuations provided for lending purposes. Figures represent 12 month rolling averages for each period. The copyright and all other intellectual property rights in the Index belong to e.surv. Reproduction in whole or part is not permitted unless an acknowledgement to e.surv as the source is included. No modification is permitted without e.surv s prior written consent. Whilst care is taken in the compilation of the Index no representation or assurances are made as to its accuracy or completeness. e.surv reserves the right to vary the methodology and to edit or discontinue the Index in whole or in part at anytime. e.surv ( is the Valuation business of LSL Property Services plc ( and is the UK s largest residential valuation practice, acting for lenders, developers, Social Housing organisations and other stakeholders in the residential property market. The business employs circa 450 chartered surveyors and covers the entire UK. LSL Land & New Homes is a trading name of LSL Land & New Homes Ltd, which is a member of the LSL Property Services Group Estate Agency Division, one of the leading residential property services groups in the UK. It s strategy is to create partnerships with developers and builders to support their objectives and add value to their businesses. It can provide integrated solutions for their benefit drawing on the expertise of companies who are also under the LSL Group umbrella including valuation services (e.surv), rental portfolio services, asset management services and estate agency services fronted by well-known high street estate agency brands like Your Move and Reeds Rains. Services can be tailored to suite individual needs from bespoke site sales and marketing, agency referral to the disposal of part exchange, assisted schemes and new build stock, land sales and acquisitions. For further information or enquiries regarding the underlying data of the LSL New Build Index, please contact Shaun Peart via Shaun.Peart@lslnewhomes.co.uk or by phoning For further information about the LSL Property Services Group including LSL Land & New Homes and e.surv, visit Disclaimer: The data is provided by LSL Land & New Homes and is based on data provided as described above. While reasonable skill and care has been taken in the preparation of the data the copyright and all other intellectual property rights of which belong to e.surv limited - neither e.surv Limited nor LSL Land & New Homes can accept liability for the accuracy or completeness of the data provided. Reproduction in whole or part is not permitted unless an acknowledgment to e.surv Limited is included. No modification is permitted without e.surv Limited s prior written consent. No warranty of the figures is given and no responsibility or liability of any nature to you or any third party for the whole or any part of its content is accepted. It is assumed that you will carry out your own due diligence before proceeding with any proposals or making any financial commitments.