How Are the UK’s Homebuilders Faring in 2015?

After a rocky January, the first quarter of the year showed a rapid uptick in building. General election results also show that confidence in building is up.

 

Within hours of the close of the 2015 Conservative Party victory in May, UK homebuilder stocks jumped. The Bloomberg EMEA Home Builders index rose the most in five years, by 7.7%, with national firm Berkeley Group Holdings climbing by 14.4%.

 

Analysts say that is because a Cameron government wouldn’t impose a mansion tax or curbs on rent increases. It makes sense that properties that will net out better will therefore be more valuable. And this comes during what is already a strong quarter (Q1 2015) for homebuilding, which saw 40,281 new homes registered with the National House Building Council – the highest number since 2007 in the comparable quarter.

 

For investors and workers in the building sector – think strategic land partnerships, which turn empty land into housing developments – this is all good news. Not only is there strong demand for housing, which is well documented and considered to be a crisis – but other factors that drive the market seem to be working to make housing a smart investment.

 

Those factors are:

 

• Cameron’s commitment to housing – While the topic of affordable housing was much more in the ownership of the Labour Party, Mr. Cameron campaigned on keeping mortgage rates lower, building more affordable homes (including 200,000 starter homes for under-40 buyers), and new savings initiatives.

 

• Lending schemes to help buyers – The Government has increased its involvement in the housing market with a clear focus on making it easier for first time buyers to get on the property ladder. They are Help to Buy equity and mortgage guarantees; Help to Buy: Right to Build (specifically geared toward the release of council-owned land for private building); Right to Buy and Right to Acquire (aimed at council and housing association tenants); and the new Starter Home Initiative (elimination of Section 106 charges on homes built on brownfield sites). Notably, all provide stimulus to the homebuilding and construction industries. Further, Mr. Cameron proposed a Help to Buy Isa to encourage younger people to save for their deposits. The initiatives introduced in 2013 have already had a measurable effect within two years.

 

• Potential homebuyers are working – The UK is enjoying the best employment numbers in years, with a 5.6% unemployment rate for the three months ending in February 2015, as compared to 6.9% in the year-earlier comparable time frame.

 

It bears noting that with the Conservatives’ victory at the polls, housing price predictions are for a significant rise (10%-20%). This is largely due to foreign buyers’ interest in UK housing as an asset class, sometimes evidenced by unoccupied properties that are merely safe havens for investors from China, Russia, the Middle East and elsewhere. This directly affects higher-cost homes, but also those at lower price points as other buys are pushed down by the premium-price homes.

 

All of which should indicate the prospects for homebuilders and their investors (e.g., property fund managers) appear to be good. Demand is never a question, given how one million working adults in the UK do not currently have the ability to buy or even rent a home where needed. Investor funds that can bring land into property development can bring a trickle-down benefit to the rest of the market.

 

Investing in UK land is long considered to be among the smartest places to put money. But the market has many variables (e.g., the recently completed campaign season), which can affect the economics of a home purchase. Speak with an independent financial adviser to consider how to manage the unknowns.