Savills: Positive signs in land market despite higher cost of finance

Despite wider uncertainty around planning and rising borrowing costs, activity in the North East’s development land market is predicted to return in the summer following an encouraging start to the year.

According to latest research from Savills, the land pipelines of the major housebuilders have remained strong over the past two years – currently 15% larger than the 2015-2019 pre-pandemic average – despite the mix of rising borrowing costs along with the end of Help to Buy seeing the land market, at a broader national level, slow in Q4 2022.

The return to higher levels of buying activity in the land market is, Savills research suggests, likely to depend on the pace of the recovery of transactions in the residential market. Early indicators from the start of 2023 present a mixed picture. The latest Bank of England Money and Credit data reveals that mortgage approvals in January were at their lowest level since 2011. However, there was an increase in starts on new plots in January and February (but starts remain 35% below the long-term average).

Ray Minto, director and head of development at Savills in Newcastle, said: “Generally speaking, the residential development land market has changed completely in the last year, from a highly competitive market in the first half of 2022 to a much steadier, and selective market from Q3 2022 onwards. Whilst some developers are stating that they have no short-term requirement to add to their pipeline, other developers are using the slowing market to focus their resources on trying to secure sites in better residential locations.

“We expect activity to return in the summer if the more positive sales rates which have been reported by housebuilders over Q1 2023 can be maintained, with a full recovery likely to come in 2024. In the meantime, demand from other developers such as Housing Associations, Single Family Private Rented Sector and student housing providers, who are not reliant on open market sales, will see the quieter market presenting an opportunity to build their pipelines with less competition.”