A weekly news summary covering all aspects of the housebuilding industry from Pierre Williams, the HBF's head of media. Available to members only.
Persimmon on prices: “They’re ready to bounce back”
Persimmon has reported a 47 percent jump in first-half profits and says it is in good shape to shoulder a housing market slowdown that, it claims, will be short-lived and modest. Profits to the end of June were £214.9 million, up from £146.3 million during the same period last year. Although admitting the market has become “more subdued” following the series of recent interest rate rises, CEO John White believes the slowdown is a symptom of nervousness about rate rises rather than of their real effect on debt servicing. Once this worry has worn off and buyers realise that rates are on or near their peak, we’ll see a resurgence in confidence.
In a statement, the company said: “Visitor levels remain good and there has been no significant increase in the use of sales incentives. The majority of our homes are sold to owner-occupiers whose confidence is underpinned by strong employment prospects and we are not therefore reliant on the investor market. As a result of the slow planning process, which is delaying site openings across the country, demand continues to exceed supply and is likely to do so for the foreseeable future.” Shares rose 23p to 641p. Data analysts, Prophit, later issued a market forecast much in tune with this view. (All media)
HBF note: And why not? John White might be the first big hitter to have said it, but the reality is that affordability in terms of debt servicing is nowhere near its peak. At current interest rates, prices would have to rise by almost 50 percent to become as unserviceable as they were during the last crash. Once realisation dawns that rates are near or at their peak, a resurgence of buyer confidence starts looking increasingly likely. Current sentiment that prices cannot continue rising simply isn’t borne out by the fundamentals. The only real “solution” is greatly increased supply. And who’s banking on that?
…and others remain bullish
Persimmon is not alone. The increasing belief that the entire sector is well placed to deal with any slowdown which, in any event is expected to be moderate, has boosted investor confidence. Westbury was earlier this week the FTSE 250’s biggest riser, up 22p to 420p; Redrow was up 13p to 354p, Bovis was up 16p to 530p while McCarthy & Stone rose 16.5p to 558p. Barratt added 16.5p to 572.5p and Berkeley rose 34p to 1183p. (Express)
HBF note: Downsize and batten down the hatches or go for acquisitions and increased volumes? The differing views and strategies of Britain’s top housebuilders are the subject of an FT feature this week. This should be accessible on www.ft.com. For more information contact pierre.williams@hbf.co.uk(Pierre Williams).
“Tide turns” as prices fall once more
Surveys, of course, do not look at the future and the latest from Hometrack shows a fractional fall in prices for the second consecutive month. Average prices for August fell by just 0.1 percent and although there was marked regional variation, no area saw a fall more than 0.4 percent (Berkshire, Surrey and East Sussex). The biggest winner was North Yorkshire on 0.2 percent. Hometrack does not expect a crash: “Provided base rates remain below 5 percent, present house price levels can be supported,” said a spokesman. (Times)
Mortgages slump 16 percent
The expected fall in mortgage lending has materialised. The number of new home loans suffered its largest fall for a decade - 16 percent - between June and July and was 20 percent down on the same period last year, according to the British Banking Association. In terms of total mortgage approvals, last month’s figure was 210,500 compared to 261,500 a year ago. This is a bigger fall than the City expected and puts extra pressure on the Bank of England not to raise interest rates further. One leading analyst said: “If the indications on housing activity remain as worrying as the BBA says, then another move higher in rates in November comes into question.” (All media)
HBF note: In addition, high street sales figures have shown a slowdown this month and the CBI has demanded an end to further rate rises. All this is piling up pressure on the Monetary Policy Committee to peg rates. On top of this, the Bank of England’s Chief Economist, Charlie Bean, has let it slip to an Irish newspaper that he believes whilst it might be necessary to raise rates in future, he does not believe they will have to rise as high as they have done during pervious economic cycles as current high levels of debt will preclude this.
Government’s Inheritance Tax plot
Inheritance Tax for middle class families is set to soar in a scheme being hatched in Downing Street. The plan - hotly denied by government - would replace the 40 percent levy raised on estates worth £263,000 or more. The proposal is for a 50 percent threshold on estates worth more than £763,000, affecting about 4,000 families a year, while there would be a new starter rate of 22 percent for estates worth £263,000 to £288,000 and 40 percent on all those between these top and bottom bands. This “big idea” for a “fairer” system has been drawn up by the Institute of Public Policy Research, a left-leaning think-tank with close links to Number 10.
HBF note: Hotly denied it may be, but the fact that the media was fed and reported on the issue of the unfairness of Inheritance Tax a week before this IPPR “idea” came out, speaks volumes. Who could complain about a “fairer” system!?
Nimby insurance to cover future blight
Homeowners can now pander to their nimby paranoia with insurance that will pay out if neighbouring development is approved. A premium of £12 a month will secure a payout of up to £100,000 if the policyholder decides to sell up and move away from the perceived blight. The owner will receive the selling price plus the estimated loss in value that will be worked out by a chartered surveyor. Homeowners in suburban fringes are being targeted. A director of insurance firm Lucas Fettes & Partners, which is offering the policy, said: “If my house looked onto a field or I was on the edge of the green belt, then I would be worried about what John Prescott is trying to do with all those new homes planned in the South East.” (Times)
Planning failures demolishing government’s promises
The government’s dream for a massive increase in housebuilding using modern methods of construction is rapidly fading. Professor James Woudhuysen of De Montfort University said new technologies were providing the scope for high-quality sustainable housing. Pierre Williams for HBF agreed but said investment in this technology was being thwarted by an increasing realisation that the government’s big promises on effective planning reform and delivery were sounding increasing hollow. (BBC R4 Today)
Berkeley pushes ahead with bonus plan
Berkeley is to push ahead with its controversial restructuring and incentive scheme, despite considerable investor concern. A shareholder vote on 17 September to approve the return of £1.45 billion (£12 a share) will be conditional on support for the proposed incentive scheme that would see 15 percent of the remaining company handed to the executives. Investor feelings are mixed. Some are happy, others are concerned there is no way of telling now what 15 percent of the company will mean in terms of value. Institutional investors, the ABI and Isis Asset Management, are the most concerned. The restructuring vote, which has widespread approval, needs 75 percent of the vote. The remuneration scheme, which is more controversial, needs 50 percent approval. (All media)
80 percent of MPs rate housing as biggest issue
Four out of five MPs rank housing as the biggest concern of their constituents, according to a cross-party survey by homelessness charity, Shelter. Forty three percent of MPs said constituents complained of high rents causing real hardship and 38 percent said high prices made it impossible for them to own their own home. A spokesman said: “Housing is becoming the issue which dominates life for more and more people. It is one of the issues which, when people look to the future, simply see things become worse, not better. Peterborough MP, Helen Clark, said: “When I go door to door, it’s all about housing. Unless you get proper housing you are not going to get proper health, education, law and order or economic prosperity. It all flows from housing.”
Stamp Duty more than doubles under labour
The cost of Stamp Duty for the average house purchase has more than doubled under Labour. The Conservatives have picked up this following their attack on Inheritance Tax hikes last week. Shadow Chancellor Oliver Letwin, said: “This is another example of Gordon Brown’s 66 stealth tax rises.” First time buyers are among the most affected with about 90 percent of them facing Stamp Duty bills of more than £1,000. (Telegraph)
HBF note: Will we be seeing proposals for “fairer” Stamp Duty next week?
Thames Gateway “to create 232,000 jobs”
Prescott’s growth plans for the Thames Gateway would create 128,000 new homes and 232,000 jobs. But the planned distribution of the housing has been attacked by the CPRE, which says London is not absorbing enough of the homes and that Government is refusing to commit to building only on brownfield. (FT)