Weaker sterling lifts the FTSE and Barratt Developments is riding the property market rally

The UK market pushed ahead on Wednesday while Europe and most of Asia went in retreat, following losses on Wall Street last night,” says Russ Mould, Investment Director at AJ Bell.

“Powering the FTSE 100, up 0.3% to 5,987, was strength among pharma, consumer goods and mining companies, with GlaxoSmithKline the biggest contributor in terms of index points. All these stocks are big dollar earners and they benefit from renewed weakness in the pound.

“After moving from $1.26 in mid-July to $1.33 at the start of September, the pound has since lost half of these gains and has struggled to rebound as we draw closer to the EU trade talk deadline. The currency is likely to remain volatile as the market is still in the dark as to what is really going on with the negotiations.

“Growing chatter about whether the UK needs to go into a national lockdown weighed on travel and leisure stocks, with International Consolidated Airlines, Whitbread and Compass all suffering on the market. Investors clearly speculated that demand for their services would be hit once again.”

Barratt Developments

“The housing market is enjoying a major tailwind thanks to temporary stamp duty relief. Barratt Development has seen the average number of reservations go up by a fifth between 1 July and 11 October year-on-year. The number of house completions increased by a quarter in that period.

“These figures show that covid-19 is not preventing the construction of new properties nor consumers’ willingness to make what could be the biggest financial transaction in their lives.

“The Government seems intent on finding ways to help people onto the housing ladder and that’s good news for Barratt whose customer base is heavily weighted towards first-time buyers.

“Approximately half of Barratt’s customer base in the past quarter used the Help to Buy scheme and three quarters of those people were first-time buyers.

“Help to Buy changes from April 2021 whereby the scheme will be restricted to first-time buyers. Barratt might be less affected than some of its peers but it will still have a sizeable chunk of its potential customer base which will need to find alternative ways of facilitating a property purchase. Part-exchange is one option.

“Help to Buy has acted like a monster pack of Duracell batteries, fuelling housebuilders since its launch in 2013. It’s no wonder the housebuilding industry has been calling for the Government to extend the scheme in its current form.

“The end of the stamp duty relief next March will also test the broader property sector with fears that the current surge in activity has simply brought forward transactions and so we could see a lull in the usual spring selling season.

“Boris Johnson has talked about a desire for banks to offer 95% mortgages with the Government potentially acting as a partial guarantor. We’re still short on detail but the Prime Minister seems to think this policy could create 2 million more homeowners. That’s music to the ears of a business like Barratt.

“What seems almost certain is that Mr Johnson and his colleagues will find some way of keeping the property dream alive and for Barratt that means it is worth keeping the cupboard stocked with hammers and nails so it can churn out more homes.”

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