THE Government’s Funding for Lending and Help to Buy have both improved the availability of mortgages and when combined with a historically low cost of credit, the affects of these support measures are beginning to feed their way through into the figures, writes Nicholas Williams of Brewin Dolphin.  

Reports suggest the number of mortgage approvals and housing transactions have picked up, but the talk of a boom is, in my view, slightly premature.

House builders, such as local Bellway and Persimmon, as well as other property related stocks, Howden Joinery and Travis Perkins, have benefitted from the introduction of the Help to Buy scheme and the increased confidence in the sector.

The Bank of England recently reported a rise in activity in terms of both enquiries and transactions for house builders, plus buy-to-let investors also remain highly active. At the same time, upward movements of share prices in the sector have boosted the performance of UK small and mid-cap collective funds in 2013 which typically hold reasonable weightings in these stocks.

A recent correction notwithstanding, shares in the sector have performed well and investors may be thinking it’s a good time to take profits, but that doesn’t mean to say the sector has run its course. Far from it. Government seems very keen to help people onto the housing ladder, with Help to Buy widening from 2014 to include everyone, not just first timers, plus both old and new homes.

House prices, it seems, have already started to move in anticipation of increased demand resulting from the widening of the scheme.

According to Nationwide’s recent house price report, UK house prices rose 0.6 per cent in August and 45 per cent of the upturn in activity was driven by first time buyers. The same first time buyers who appear to feel more confident that they can get that first foot up.

However, with demand currently running ahead of supply, affordability is still an issue. Whilst this disequilibrium remains, prices could remain artificially high. Critics of the Help to Buy scheme also fret that it could support a bubble in the South East, with the Chancellor last week giving the Central Bank his blessing to reduce the cap on eligible properties, currently £600,000, if needs be.

On the plus side, affordability will, for the time being, continue to be supported by the low interest rate. Whilst Mark Carney’s intent on maintaining the current base rate until unemployment reaches 7 per cent provides some reassurance on future rates, employing the use of trigger points allows the Government to increase rates should things change dramatically in the future.

Carney recently reassured markets he was aware of the economic threats of an overheated housing market and would take action if needed. Potential policy measures could include asking lenders to make their borrowing terms more onerous, or forcing banks to hold more cash on their balance sheets. If that is the case, it is certainly my hope that any such measures are done against a backdrop of encouragement for the construction of new homes.

The recovery in the share prices of house building stocks has produced very attractive gains since their 2008 nadir, but this recovery was from a very low base. With several economic unknowns still reflected in share prices and taking a longer term view I don’t think the best has passed by any means.

Nicholas Williams is an Assistant Director at Brewin Dolphin and offers advice on a wide range of financial services to private clients, trusts, charities and pension funds. 

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The information contained in this article has been taken from public sources and is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents.