Residential development land values increase in England and Wales

According to the latest index from Knight Frank Residential, development land values climbed by 0.5% across England and Wales in the first three months of the year.

Average land values were up 0.2% on the year, reversing the 0.3% annual decline in the fourth quarter of 2012 but there are regional variations with prices in prime central London up 4.8% while prices outside the capital broadly flat, rising by just 0.2%. However, recent political developments could prove a boost to the market in the coming years, according to Gráinne Gilmore, head of UK residential research at Knight Frank.

She pointed out that the first part of the government’s multi billion ‘Help to Buy’ scheme is aimed solely at the new build sector and the scheme aims to help 74,000 buyers with modest deposits to buy a home over the next three years. Under the first part of the plan, which launched on 1 April, the government will offer an equity loan of 20% to first time buyers and home movers, interest free for five years. This will allow borrowers to access a 75% mortgage deal instead of a 95% loan to value deal.

There are far more 75% LTV mortgage deals available on the market, and the lower the LTV on a mortgage, the cheaper the interest rate tends to be. The government is setting aside £3.5 billion for these loans.

‘The rise in buyer interest likely to be engendered by the scheme will make it easier for house builders to turn around their sites more quickly, thereby reducing their cost of capital. As a result, there may be more scope for land prices to rise,’ said Gilmore. ‘Recent revisions to official household growth projections underline the continued demand for housing across England and Wales, especially in London, which will underpin land prices as well,’ she added.

Quote from PropertyCommunity.com : “The house building land sector saw increased activity in 2012 in England, despite continued fragile economic conditions, new research from CBRE reveals. House builders committed more capital to land acquisition and development, attracted to good quality residential sites with planning consent.”

The increased availability of mortgage lending as a result of the scheme could see a step up in demand for housing. Some house builders are already reporting increased interest from applicants. ‘As demand increases, house builders’ ability to turn schemes around more quickly will be enhanced, cutting their cost of capital and leaving some room for land prices to rise,’ said Gilmore.

The second part of ‘Help to Buy’ being introduced next year, is a much larger mortgage guarantee scheme, available for new build and existing housing stock, which Gilmore says could further boost activity in the market. The report also says that there are signs that more planning consents are coming through on some developers’ structural land banks. ‘This is a result of challenges faced by some local authorities in achieving an ongoing supply of sites sufficient to provide five years’ worth of housing, a requirement of the new National Planning Policy Framework (NPPF),’ explained Gilmore.

‘This rise in consents means supply is less constrained than it was this time last year. However, in some cases, land is being approved for development where there is limited demand, given the new economic dynamics across the UK. Indeed, there is still a shortage of development land of the right scale across South East England,’ she added.