UK economy in better shape
The feel-good factor continued with the Q2 GDP figures, published this week, which showed UK GDP rose by 0.5 per cent in the second quarter, 0.1 per cent higher than forecast. This means the UK saw the highest growth in the G7 in the first half of the year. Unfortunately, the outlook for H2 remains more downbeat, but until then it will be seen as a welcome boost in the run up to the Budget.
More help to buy?
Labour has promised full details of the Your First Home plan will be released in the October Budget – now less than four weeks away. However, what we know so far suggests it will enable purchasers in a position to source a 2.5 per cent deposit (alongside their buying and moving costs) to borrow an additional 20 per cent from government. Effectively meaning they can approach the market with a 22.5 per cent deposit to secure their first new build home. Like Help to Buy, this 20 per cent loan will be interest free for a set period before the government starts to charge interest, with borrowers having to repay the loan on sale. There have been no announcements yet on whether there will be a different deal for London – remember under Help to Buy London buyers could borrow 40 per cent rather than 20 per cent of the purchase price.
Burnham has promised this will be ‘targeted’, meaning we’re expecting upper price thresholds and/or earning caps determining who can access the new scheme. The level at which these thresholds and caps are set will be fundamental to its success, particularly in markets like London where challenges around wage caps set at too low a level are already impacting shared ownership sales.
So how many new homes could this deliver?
Help to Buy isn’t without its critics, but few will deny that it increased activity in the new homes market, something government needs if it is to deliver more homes at the end of the parliament than the start.
Over its ten-year life, Help to Buy loans were issued for 385,000 properties, of which 82 per cent were for homes bought by first time buyers. With the number of transactions using Help to Buy peaking at more than 55,000 per annum, equivalent to around a quarter of all new build sales. Of course these won’t all have been additional sales, with a proportion of those who bought arguably still getting onto the housing ladder at some point, albeit possibly buying later.
Setting aside the various yet unanswered questions about the scheme, and assuming common sense prevails on caps and thresholds, eligibility and take up than Help to Buy suggests we could see up to 40,000 more new starts per annum once the scheme is up and running. Comparing the number of housing starts in the year post Help to Buy’s inception shows a 31 per cent uptick, with a fall in starts of 23 per cent following the scheme winding up back in 2023.
What about your next home?
Your First Home bridges the gap for those buyers who have the income to purchase but don't have the means (or access to family support) to raise a deposit. If the scheme provides similar 31 per cent fillip for development, we'd still reach just 170,000 starts based on current rates, far off the 300,000 let alone the 370,000 target for England.
However, the ongoing challenge of higher mortgage rates will curb enthusiasm and buying power across the market if they persist. Latest figures from the Bank of England show the impact of higher rates on the market, with average fixed rates on all outstanding mortgages—not just new lending—have risen to 4 per cent, their highest level since 2009 and double the figure five years ago. New lending figures are also being impacted by higher rates and rising uncertainty over the short-term outlook, with mortgage approvals falling to a 38-month low in August. The fewer than 55,000 deals approved down 15 per cent year-on-year. Remortgaging activity remains similarly subdued, with home movers unable to benefit from the Your First Home initiative.
Other news from conference
The Your First Home plan wasn't the only announcement to come out of the Labour Conference. Amongst a plethora of new plans, Burnham announced Labour's intention to end the triple lock by 2030. Hoping that a new Social Care Pledge will soften the blow for pensioners. The downgraded double lock proposes state pensions will rise by the higher of 2.5 per cent or inflation but will be decoupled from earnings. Rumours also persist around the High Value Council Tax Surcharge, with suggestions Healey could (and could is doing quite a bit of heavy lifting here) reduce the lower price threshold from £2million to £1.5 million. A move which could double the number of homes within scope.
Queueing at the Gate(way)
August marked 12 months since the establishment of the Innovation Unit set up to deal with new build 'high-risk' application. Since its inception median approval times for new build applications have fallen from 43 weeks to 22, with approval rates rising from 39 per cent to 92 per cent. Response times are still far off the 12-week target, but the improvement in response time will stand them in good stead as they brace for a flurry of applications in September (August already registered an uptick) with applicants keen to submit prior to the introduction of the Building Safety Levy on 1 October. For more information on the Levy please click here.
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