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It has been a difficult period for the housebuilding sector since the pandemic. Rising inflationary pressures have affected their input costs while the rising borrowing costs associated with the increase in inflation has dampened demand. This has put margins under pressure and hit valuations.
In this context, it is no surprise to see investors seize on a rare morsel of good news as the Government announces a new scheme to support first-time buyers getting on the housing ladder.
The Your First Home scheme will provide first-time buyers who put down a 2.5% deposit with a 20% equity loan to buy a new-build property. There will be an initial interest-free period on the loan, but it has not yet confirmed for how long.
Several of the big names in the sector are scheduled to update the market on trading in the coming weeks, including Bellway on 13 October, Persimmon on 12 November, Taylor Wimpey on 11 November and Barratt Redrow on 4 November, and they will be expected to lift the lid on any benefit they might enjoy from this state intervention.
Berenberg analyst Harry Goad describes the news as "a very significant positive development for the industry" which should benefit suppliers and retailers connected to the property market.
He adds: “The absolutely critical components, in our view, are the i) significant equity contribution from the state at 20%, and ii) the low contribution requirement from the home buyer at 2.5%. The former makes a very significant (positive) difference to mortgage affordability maths, while the latter means the cohort of first-time buyers who can participate will be significant.
“In our view, this has the potential to be materially more significant than, for example, modest adjustments to stamp duty, which at the low end of the house price range do not have a material impact either way. We see this scheme (partially) unlocking much of the affordability headwind that first-time buyers have faced in recent years.”
A previous Help to Buy scheme launched by then chancellor George Osborne in 2013 proved very supportive to the housebuilding sector. Official statistics show that from 1 April 2013 to 31 May 2023, more than 380,000 homes were bought with a Help to Buy equity loan, with the total loaned out £24.7 billion and the value of the properties sold coming in at £109.2 billion.
However, the market backdrop was very different given low interest rates and very modest cost inflation. While housebuilders will be cheering this move by the Government, they may also flag the impact of wider Budget uncertainty on the housing market ahead of the big day on 28 October.
Tom Sieber: Content Editor
Tom Sieber is AJ Bell's Content Editor. He was previously the Editor of Shares Magazine. He has been with the business since 2012.
Tom is a regular contributor to the AJ Bell Money & Markets...