Shares of London-listed housebuilders rallied on Monday on news of a new mortgage guarantee scheme that would see a return of 95% of mortgages.
Persimmon, Taylor Wimpey, Barratt Developments, Berkeley, Crest Nicholson and Vistry all gained on news that Chancellor Rishi Sunak will unveil in his budget this week a mortgage guarantee scheme to help first-time buyers.
As part of the scheme, the government will offer incentives to lenders which would mean that people would be able to buy properties worth up to £600,000 with a deposit of just 5%.
“Though it would not provide government capital (as the core Help to Buy scheme did), it could achieve something similar, in our view, bridging the gap between lenders and low-deposit buyers and underpinning the bottom end of the housing ladder,” Morgan Stanley said.
MS said the scheme could calm concerns over a cliff edge after the Help to Buy initiative is phased out and the stamp duty holiday ends, and would also work against higher loan-to-value mortgage rates seen in recent months, which has significantly eroded affordability.
“We also note that other recent articles (Financial Times, Bloomberg) have highlighted the risk of a corporation tax increase; any increase in demand that drives homebuilder revenues may be offset by an increase in tax expense further down the income statement. Nevertheless, we see this potential development as a clear positive for UK homebuilders, given their sensitivity to UK house price trajectory.”
The stamp duty holiday on the first £500,000 of a property purchase is due to end on 31 March. However, there have been reports that Sunak could announce an extension to the deadline in the budget.
Neil Wilson, chief market analyst at Markets.com, said a new mortgage guarantee scheme would underpin confidence in the housing market, “which is inextricably linked to confidence in the broader economy”.
“It should also be a big boon for the housebuilders,” he added.
