The squeeze on UK housebuilders

Average UK house prices remained flat through July, Lloyds reported this morning. That's down from 0.2% growth last month and pares the annual growth rate to 0.1%, the slowest rate since November 2023.

This chimes with other housing market indicators suggesting that the stop-start nature of the Middle East conflict and its subsequent impact on mortgage rates has prompted would-be buyers to wait until conditions settle. Net mortgage approvals for house purchases edged up to 58,200 in June, down a little over 5% on the long-run average, according to the Bank of England. The number of sales agreed during July fell 9% compared to the same period a year ago, Zoopla said last week.

Signs of stability

It's been a torrid year for UK builders sandwiched between surging build costs and weak demand for projects due to higher interest rates. Measures of activity in the S&P Global Construction PMI have fallen every month since January 2025, which is the longest continuous period of decline since the Global Financial Crisis. 

The pace of declines accelerated following the initial US attacks on Iran, but the first signs of stabilisation emerged in July. Activity levels fell again but at the slowest rate since March. Housebuilding decreased at the least marked pace since October 2025. Inflationary pressures are also beginning to move in the right direction – input price inflation eased further from May's near four-year high. The latest increase in average cost burdens was the slowest since February. Companies reporting higher purchasing costs typically linked this to fuel surcharges and rising prices paid for raw materials.

This is all-in-all better, but far from optimal. Activity is still falling and costs are still rising, but respondents to the survey are growing more optimistic. Around 38% predict an expansion in activity during the year ahead, with only 17% anticipating a decline. That's the strongest degree of optimism since February. 

Important mitigations

The listed housebuilders continue to issue warnings on cost pressures. Yesterday, Persimmon said it expects "additional inflationary pressure in 2027 including as a result of the conflict in the Middle East." That said, its "structurally lower build costs" – the firm manufactures its own bricks, roof tiles and timber frames – "provide important mitigation, although they may not fully offset the impact."

The firm said net private sales rate per week increased 6% to 0.72 in the five weeks since the end of June, up from 0.68 a year earlier. These are half-year results, and the the company expects to deliver around 12,500 completions for the full year, at the upper end of its previous guidance.

Earlier this week, Taylor Wimpey said it would deliver between 10,600 and 10,800 homes during its full year, within the lower half of the guidance it provided in March. The results included a call for government support: "without targeted demand support and viability measures to unlock delivery, weaker demand, rising costs and limited affordable housing funding risks reducing sector output and UK economic growth," the company said. 

Land values

Ollie Knight's latest update on residential development included a deeper dive on build costs and offered an early look at the results from our upcoming Residential Development Land Index, which includes a survey of housebuilders. 

Greenfield land values fell 5.5% during the quarter, taking the annual decline to 3%. Prime central London land values declined 1% over the quarter, leaving values 3% lower year-on-year. Urban brownfield land values fell 2.5% during the quarter, extending the annual decline to 5%.

Our quarterly survey of more than 35 small and volume housebuilders points to further declines in housing delivery in the months ahead. Eight-in-ten developers said site visits and reservations declined during Q2, and nearly six-in-ten expect reservation volumes to underperform in 2026 compared to a year earlier. As a result, a little under half expect start volumes to decline further in Q3, with the same proportion expecting no change. About 60% expect land values to fall further, while the remaining 40% expect the land market to trade flat. 

Planning delays remained the most frequently cited challenge facing developers, identified by 64% of respondents, followed by buyer sentiment (52%) and the short-term outlook for the UK economy (48%). Buyer sentiment overtook planning as the biggest anticipated headwind during the third quarter, cited by 58% of respondents, while half continued to identify planning delays as a key constraint. A third chose the short-term outlook for the UK economy, though material costs and availability (29.2%) and the low level of active registered providers (RPs) for S106 affordable homes (29.2%) are rising up the agenda.

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