You are here:

Can housebuilders build on the bailout?

Created:
15 October 2008
Updated:
21 October 2008
Written by:
Claer Barrett

Now that the government has ridden to the banks' rescue, can housebuilders start rebuilding their battered empires? Supporting the mortgage market was one caveat to this week's £37bn banking bailout, and stock broker KBC Peel Hunt believes lenders will be pressured to match 2007's gross advances of £255bn next year.

Advertising

and more conservative loan-to-value ratios lead KBC to predict there will be capacity to fund over 1m mortgages in 2009, compared to the paltry 600,000 forecast for 2008. "If the market could become that active again, the choke hold on the new build market could be broken," says analyst Robin Hardy.

For the housebuilders, any news is good news - the most recent RICS survey revealed that, on average, estate agents are selling less than one house a week. Such bearish sentiment is reflected in Bellway's full-year results, where sales are now half the previous levels. New build starts across the industry are forecast at just 60,000 next year, which will hammer revenues.

Why, then, does KBC now advocate buying shares in Taylor Wimpey? Having fallen 94 per cent in a year to a measly 16p, Mr Hardy argues "this is now just option money". When - and if - the refinancing of its £1.7bn debt pile is achieved, he predicts its shares could rocket 400 per cent.

Shares in highly geared Barratt and Redrow bounced after they renegotiated cash flow-related banking covenants, but both must now discount house prices aggressively to keep sales moving (see How bad is the housing market?). And increased use of incentives does nothing to combat the stigma surrounding the over-valuation of new build.

Research from consumer website moneyfacts.co.uk shows there are just 99 mortgage products available for new build property. More than half demand deposits of 25 per cent or greater, and 10 carry a maximum LTV of 60 per cent.

"HBOS has been supporting the new homes market for some time, and still offers 95 per cent LTV deals on new build," says Bellway chief executive John Watson. "We will wait and see what happens when Lloyds and HBOS join forces." For this reason, Tony Pidgely's Berkeley Group looks better placed for recovery, as its well-heeled clientele should have less trouble finding such a sizeable deposit.

IC VIEW

Taylor Wimpey's shares have plunged 87 per cent since we advised selling but, at 16p, it is tempting to regard them as a high-risk speculative buy. Less risky, but more expensive, is Berkeley, which we rate good value at 797p, as it is in a better position to capitalise on rock-bottom land prices.

  • Back to top

Products and Services from Barclays Stockbrokers.

The UK’s No.1 Stockbroker

Stocks and Shares

Contracts for Difference

Financial Spread Trading

Gilts and Bonds

Funds Market

FX

Education Centre

Trading Simulator

Advertorial Feature

Spread your risks with spread trading

With so many big moves in the world's financial markets, there have seldom been more opportunities around for spread traders. Isn't it time you joined them?

by Dominic Picarda