Builders and buyers both lacking loans

BRITISH housebuilders are in better shape than they have been for years. Persimmon yesterday became the latest to report upbeat figures and rival Taylor Wimpey looks set to follow suit today.

The industry is back in the black, and shares – which in some cases crashed more than 90pc during the darkest days of the financial crisis – are once again in favour.

Persimmon soared 13pc in London yesterday, or 79.5p, to 706.5p after it reported a 55pc increase in annual profits to £148.1m and pledged to return £1.9bn to shareholders by 2021.

Analysts at investment bank Investec said UK housebuilders are ‘huffing and puffing’ their way to recovery, and slapped a ‘buy’ rating on the sector.

‘We expect good returns over the next 12 months but we do not expect the journey to be a smooth one,’ said Investec’s Mike Bessell.

Steve Morgan, the chairman and founder of Redrow, who is a mong the most bullish of Britain’s builders, dismissed suggestions that the UK housing market is facing a ‘lost decade’ as ‘a load of b*****ks’.

Morgan, who also owns Premier League football club Wolverh a mpton Wanderers, was responding to research carried out by Collins Stewart, one of the more bearish voices in the City. Alastair Stewart, the broker’s housing analyst, had warned that ‘UK housing could be stuck in a lost decade’ with ‘at least two or three years of steady house price erosion’ still to come.

‘What a load of b*****ks,’ scoffed Morgan. ‘What is he smoking? Does he not look at the population growth? It’s a bit like saying it’s not going to go dark tonight.’

But even Morgan – who unveiled an 80pc jump in half-year profits for the company he set up in 1974 – admitted that despite ‘increasing confidence in the housing market’ the outlook for the industry ‘undoubtedly remains fragile’.

Mortgage lending is subdued, with Bank of England figures showing that little more than 50,000 loans are approved each month for house purchases.

This is well below the high point of 130,000 seen in November 2006 or even the monthly average of nearly 90,000 since 1993.

Since the financial crisis began, lenders have demanded deposits worth up to 25pc of the value of the property – or £37,500 on a £150,000 house – locking many out of the market, especially firsttime buyers. This has resulted in a collapse in the number of transactions – and a chronic shortage of house building.

Home Builders Federation figures show that fewer than 110,000 homes were built in Britain last year. That was up from 103,000 in 2010 – the lowest peace-time level since the 1920s – but less than half the 240,000 a year that experts estimate is needed to keep up with demand.

Persimmon chief executive Mike Farley said that Britain’s developers could be building more homes but will not do so because the mortgage drought is starving the market of buyers.

‘It’s not about how many homes the industry can build but how many the industry can sell,’ said Farley. ‘ We can only build the houses we can sell, and people need to get mortgages.

‘The lack of mortgage availability is what is holding the market back. People can afford the mortgages but they don’t have the deposits.’

David Ritchie, Farley’s counterpart at Bovis Homes, told a similar story.

Although he plans to build ‘substantially more’ homes this year as the company benefits from its shift south, he does not expect the industry to follow.

‘There may be a gradual recovery but it will be very slow,’ said Ritchie. ‘We are still nowhere near satisfying demand.’

The Bovis chief executive remained cautious despite a 74pc jump in profits last year to £32.1m.

‘We are not seeing any fundamental change in the housing market,’ he said. ‘Mortgage approvals are slightly up, but it still feels pretty static and pricing across the country is pretty stable.

‘With a backdrop of continuing economic and employment uncertainty, trading conditions are expected to remain challenging during 2012.’

So how are the housebuilders managing to prosper?

Crucial to their success – albeit limited so far – is that builders are widening their margins by focusing on more profitable houses rather than flats, the more prosperous south rather than the north, and developing land that they bought on the cheap during the recession.

‘Everyone is seeing the benefit of the washing effect of trading out of old land where the margins are l ess strong and bringing through the new land where the margin i s better,’ explained Ritchie.

The eyes of Britain’s builders are now firmly on the spring selling season, which they hope will be boosted by the government’s new mortgage indemnity scheme aimed at helping hardpressed youngsters get a foot on the housing ladder.

The Newbuy initiative will allow banks and building societies to provide 95pc mortgages on newbuild properties worth up to £500,000. There is reduced risk to the lender because the government and developers will be providing guarantees.

‘It will be a huge boost to house building,’ said Stewart Baseley, executive chairman of the Home Builders Federation.

‘Since 2007, the biggest constraint on homes being built has been mortgage availability. This scheme will see more desperately needed homes being built, create jobs and give the economy the boost it needs. If it can deliver 100,000 sales in the next few years it could be a real game-changer.’

With the housing market and the wider economy still struggling f or direction, ministers and housebuilders will be hoping for just that.