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Housebuilders’ shares in demand thanks to stamp duty boost
There was welcome news for housebuilders in chancellor Rishi Sunak’s mini-Budget (8 Jul) as he raised the stamp duty threshold on properties from £125,000 to £500,000 until 31 March 2021.
This move should boost the property market and benefit housebuilders, estate agents, DIY retailers and building materials suppliers.
The stamp duty decision, which had been widely trailed ahead of time, and a trading update espousing ‘cautious optimism’ on the outlook helped lift shares in Barratt Developments (BDEV) on 6 July. It saw further gains on the following two days.
In recent trading updates there have been calls from the housebuilding industry to extend the existing Help to Buy scheme beyond its current expiration date in 2021, upon which the scheme changes so that only first-time buyers are eligible. There was no news on this front in the mini-Budget.
Equity valuations among housebuilders continue to reflect some nervousness over the prospects for the sector. According to stockbroker Davy the average price-to-book value for the housebuilders over the last five years was a shade over two times. It is significantly lower today though there is variation across the sector.
Some caution is warranted due to the uncertain outlook. While order books in the housebuilding sector have been surprisingly resilient and customer demand has bounced back post-lockdown, the economic impact on the housing market is yet to fully come through.
One area to watch is the mortgage market with lenders withdrawing higher loan-to-value products as they look to protect themselves from potential future bad debts.
The widespread availability of cheap mortgages, the Help to Buy scheme and the strong dynamics behind the housing market, with demand outstripping supply, have been big factors behind the housebuilding sector’s impressive profitability for the latter part of the 2010s.
One factor in housebuilders’ favour heading into a downturn in the economy and property market is they have, for the most part, significant stronger balance sheets than they did before the global financial crisis.
Other measures in Sunak’s mini-budget
1. Discount for eating out and VAT cut
Positive for pubs, restaurants and hotels
2. Green home grants for homeowners
Positive for construction and building products sectors