Call for clarity on UK housebuilding amid fears of new bubble

UK housebuilders and mortgage lenders called for more clarity on how the government will wind down a support scheme for struggling housebuyers which has boosted developers’ profit forecasts amid fears of a new property bubble.

Demand for houses and mortgages has risen sharply in recent months since finance minister George Osborne introduced a programme of loan guarantees for aspiring homeowners with small deposits.

Data from mortgage lender Halifax showed house prices rose at their fastest annual rate in nearly three years in the second quarter while banks reported a sharp rise in mortgage lending.

Housebuilders such as Taylor Wimpey, Persimmon, Galliford Try and Redrow lifted profit forecasts this week, shoring up confidence that Britain's housing market is firmly recovering.

"No industry should depend on those kind of measures long term...there needs to be an exit plan," Taylor Wimpey's chief executive Pete Redfern told Reuters today.

“The note of caution I’m sounding is that let’s not assume this should be here forever. Let’s have a plan that it should be here for 2-3 years and then sensibly withdrawn rather than taken away overnight.”

The Building Societies Association, which represents lenders, last month called for a "clearly defined exit strategy" to avoid distortion in the housing market in three years time.

Under the first part of the scheme, introduced in April, the government provides equity loans for new build homes. The support will be extended to existing homes from January.

The two parts of the scheme will each run for three years but the government has not provided details on how it will shut it down.

"Policymakers must be prepared to quickly pull the plug on the 'Help to Buy' mortgage guarantee scheme at the first sign of any housing price bubble developing," said Howard Archer, IHS Global Insight's chief UK and European economist.

The market could be in for a rude shock after raising its bets on housebuilders, said Panmure Gordon analyst Mark Hughes. Housebuilders now on average trade at 1.59 times price to book value, compared with 0.86 times a year ago, he said.

“Everyone is mesmerised and blinded by the positive comments coming out of the sector and I don’t think the market’s looking at valuations,” he said.

“When the government stimulus is taken away, if the next government doesn’t put in some sort of parachute stimulus payment into the market, it will fall away completely and that has the danger of causing another slowdown.”

Reuters