With a mixed picture of busy sites and stalled projects, Patrick Mooney sees an uneven slow recovery in the housing market, which still faces several obstacles.
Challenging housebuilding conditions are forecast to continue through the second half of the year, despite the Government’s pro-growth agenda, along with stretching targets for new homes and development friendly revisions made to the national planning framework. However, greater flexibility in the mortgage markets is expected to tip the balance in favour of higher demand from buyers leading to more confidence among builders.
Conflicting evidence on how different aspects of the housing market are performing was reported over the summer with data from highly reputable forecasters at Glenigan, Savills and S&P Global all appearing to point in different directions. This is not unusual where a market is in flux as it attempts to transition from stagnation into one which is driving growth, with the outcome still in
the balance.
While visiting a number of construction sites in the West of England in recent months, I saw these contradictory drivers being played out on an almost daily basis – at some sites labour and materials were in short supply and restricting progress, while at others there was a hive of activity on display as the workforce battled to meet tight deadlines. No two sites were showing the same signs of efficiency or stress, which made it difficult to draw any conclusions.
Slow but steady progress
Sector optimism was boosted in the three months to July 2025, with the Glenigan Index recording a 9% rise in project starts both compared to the preceding quarter and to the same period in 2024. While the pace of recovery had slowed from the sharp gains seen earlier in the year, activity levels remained on an upward path. Residential construction was the standout performer, with starts up 10% on the previous quarter and 25% higher than a year ago. This growth was almost entirely driven by private market housing for sale, which rose 24% quarter on quarter and an impressive 40% year on year.
The only downside came from social housing, which saw a sharp reversal, falling 33% compared with the previous quarter and 24% annually. The social housing sector is not expected to be filling the gap in building targets any time soon despite the huge additional money promised through the spending review. The largest housing associations have been diverting investment from new build programmes into their existing stock to make safety and energy performance improvements, mostly in response to legal and regulatory changes. In addition there is still a reluctance to buy up homes developed through Section 106 agreements, due to a perceived lower standard in their build and amenities.
Figures released by the National House Building Council, the UK’s largest provider of new home warranties and insurance, showed that 30,405 new homes were registered to be built in Q2 of 2025, up 4% on a year ago and 4% more than Q1. Steve Wood, CEO at the NHBC said: “There has been modest growth in house building registrations in Q2 compared to last year, signalling an uplift in confidence from developers, especially in low-rise housing. While some areas of the market remain subdued, we remain optimistic about the longer-term as planning and land restraints are increasingly unblocked, mortgage rates ease and the Government sustains a focus on new home delivery.”
Meanwhile, in their Housing Supply Update issued in August, Savills reported that total house completions remained broadly stable, at just over 201,000 in the previous 12 months. But the outlook for the next 12 months was seen as much more positive due to a big recovery in new home starts figures, which in the year to June were 40% higher than for the same time last year. Growth in delivery appears to be restricted to the major housebuilders with the 10 largest builders enjoying a third consecutive quarter of growth in annual completions, while SMEs saw completions fall.
Further positive news was reported by Savills in relation to planning, with 225,000 homes gaining full planning permission in the past year which, although representing a small drop, still meant that consent numbers grew by around 25% on a quarterly basis. In overall terms the update struck a cautiously optimistic note – it can see the green shoots of recovery, but it wants to see further evidence before declaring a full-scale recovery is in progress.
Challenging times still with us
In contrast a more pessimistic note was struck by S&P Global who reported that activity in the UK construction sector fell in July at its sharpest rate since the height of the Covid pandemic amid a collapse in housebuilding, underscoring the challenge facing the Government and its ambition to build 1.5 million new homes during the life of this Parliament.
The figures from S&P Global Market Intelligence showed activity fell in July at the steepest pace since May 2020. The data provider said a sharp drop in residential building pulled down its monthly purchasing managers index (PMI) for the UK construction sector as a whole, alongside a plunge in civil engineering and a softer downturn in commercial property. Compiled from a survey of about 150 construction companies, the survey is closely monitored by analysts at the Treasury, the Bank of England and across the City for early signs of good or bad health from the economy.
Joe Hayes, a principal economist at S&P Global Market Intelligence, said: “Forward looking indicators from the survey imply that UK constructors are preparing for challenging times ahead. Anecdotally, companies reported a lack of tender opportunities and a hesitancy from customers to commit to projects.” The headline UK construction PMI fell from 48.8 in June to 44.3 in July, on a scale where a reading of 50.0 separates growth from contraction. The housing activity index, a subcomponent of the overall score, fell from 50.7 in June to 45.3 in July.
Taken together, the Glenigan Index, the Savills Update and the S&P Global PMI present different snapshots of the same housing market. Perhaps a balanced interpretation would be that progress is slowly gathering pace, albeit unevenly across sectors and regions. Continuing shortages of labour, a stubbornly high inflation rate and tax rises in the next budget could all undermine a fragile looking recovery. Matt Swannell, the chief economic adviser to the EY Item Club, summarised the conflicting drivers of change, by saying: “The outlook for housebuilding in particular is mixed as the effects of planning reforms are counter balanced by elevated construction costs and labour market shortages.”
An optimistic note was subsequently struck by the financial markets. Following a cut in the Bank of England base rate, average UK mortgage rates fell, with the five-year fixed rate mortgage dropping below 5% for the first time since the 3 May 2023. Lenders are also offering more choice, with 7,031 residential mortgage products available, which was up from 6,992 on the previous working day Adam French, head of news at Moneyfactscompare.co.uk, said the news “will be more welcome news for borrowers”. Moneyfacts described it as a “symbolic turning point” for homebuyers and it showed lenders are “competing more aggressively”. Commenting on the five-year mortgage rate drop, French said: “The slow and steady fall in the cost of borrowing over the last year combined with strong average earnings growth has helped to marginally boost affordability for many homeowners and homebuyers.”
Social sector needs boost
In previous periods of sustained growth in housebuilding, councils have played a significant part in delivering new homes. At present they are not well placed to meet this challenge as their budgets are being strained to the limit by the staggeringly high costs of providing temporary accommodation for homeless households. Local councils are facing huge difficulties in tackling the growing pressures of record levels of homelessness and waiting lists which are refusing to come down.
At the same time their housing stock is constantly being eroded by tenants exercising the Right to Buy. While the Government is honouring its manifesto commitments to make Right to Buy far less attractive to tenants wanting to buy their homes, the initial curbs have inadvertently stimulated a stampede of purchases from tenants rushing to beat the reductions in discounts that are being put in place. In fact this could be an exceptional year for RTB sales with as many as 18,500 council homes being bought by tenants (up from 7,494 last year), according to the thinktank Common Wealth.
This year’s sales figure looks like it will dwarf the number of new council houses that were built in 2024/25 which stood at just 2,260. But sales have outstripped construction figures in every year since 1980, when Margaret Thatcher introduced the RTB. Since then over two million council homes have been sold and an estimated 41% of them are now being privately rented at much higher market rents than in the social rented sector and with less secure tenancies for the residents. To counter this trend, the Government has reduced the value of RTB discounts in England back to their pre-2012 levels by capping them at between £16,000 and £38,000, down from maximum values of £102,400 (rest of the country) and £136,400 in London. Earlier this summer it announced further plans to cap discounts at a maximum of 15% and to exempt new council homes from the Right to Buy altogether for 35 years.
Ministers will hope that their reforms to the planning system will be more successful in meeting the desired result than the initial response to cutting back on council house sales through the Right to Buy. This will require several more quarters of sustained growth in planning consents, as well as new house starts, completions and sales. There are signs that confidence is slowly returning to the housing sector, but it is still quite fragile with particular concerns over the availability and cost of labour, as well as buyers’ willingness to take out mortgages. Provided the economy can sustain lower mortgage rates and deliver confidence to a market long plagued by uncertainty, there is hope that growth can be delivered.
We also need to get the social housing development sector back on its feet and actively involved in building new homes, along with the SMEs who for so long were the backbone of the house building sector but have been particularly hard hit by the slowdown and are now battling to stay afloat. The answer to both might be in unlocking smaller residential sites, with quicker, streamlined planning processes. Let’s hope that Labour’s commitment to the new build sector can also find a way to solve this particular problem.