U.K. Homebuilders Gain as Government Home Loans Lift Demand

U.K. homebuilders led by Redrow Plc (RDW) and Taylor Wimpey Plc (TW/) gained in London trading after the government’s Help to Buy loan program boosted demand and helped lift house prices to the highest in almost three years.

Taylor Wimpey gained 7.1 percent, the most in more than a year, after it reported a widening operating margin in the first half. Redrow rose 7.2 percent to 237.90 pence after the company said first-half profit was at the upper end of analysts’ estimates.

“Trading is sustainably better because the government is backing up a lot of the activity in the sector,” Howard Seymour, a Numis Securities analyst, said by telephone. “Share prices have gone up a lot in the sector and valuations are high.”

Residential property values increased to an average of 167,984 pounds ($256,100) in June, the highest since August 2010, according to a report today by Halifax, the mortgage unit of Lloyds Banking Group Plc. Purchases were boosted by the Help to Buy loan program, introduced by the U.K. government in March, which offers buyers of new homes loans of 20 percent of the value of a property worth as much as 600,000 pounds.

“Customer confidence is good and transaction levels are picking up,” Pete Redfern, chief executive officer of Taylor Wimpey, said by telephone. “There’s a little bit of price movement out there but it’s sensible -- not house-price boom territory.”

Bellway Plc (BWY) gained 4.5 percent, Crest Nicholson Plc (CRST) advanced 2.9 percent and Barratt Developments Plc (BDEV), the third-biggest U.K. homebuilder by market value, rose 5 percent.

Margin Focus

Homebuilders moved their focus away from high-volume development toward single-family homes that deliver wider margins after facing hundreds of millions of pounds of writedowns and falling sales after the 2007 housing collapse.

The operating profit margin at Taylor Wimpey, the U.K.’s second-biggest homebuilder by market value, widened to more than 13 percent in the first six months of the year from 11.2 percent a year earlier, the company said today. Persimmon, the largest by value, said July 2 that its operating margin widened to about 15 percent during the half from 12.1 percent.

While the Help to Buy initiative has helped lift mortgage approvals, it has drawn criticism from the International Monetary Fund for its potential to stoke home price inflation. Price gains have already been fueled by record low mortgage rates, which have been driven down further by the Funding for Lending program, which gives lenders access to cheap capital if they use it to grant home loans.

Unless the U.K.’s efforts to boost housing increased supply, the measures would ultimately cause price increases -- a “result that would work against the aim of boosting access to housing,” the IMF said in May.

The Bloomberg EMEA Home Builders Index of nine stocks gained 3.2 percent to 228.4, the highest since May 20. The index has risen 35 percent this year, led by Persimmon. The benchmark FTSE 100 Index has increased 8.9 percent during that time.

To contact the reporter on this story: Patrick Gower in London at pgower@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net

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