Mark Homers latest word: People are talking about all kinds of things in the UK right now… Missing Malaysian Airlines Flight MH370… Whether rates will rise sooner than later.. Will housing continue to roar back….. However, the next game-changing announcement took place ahead of this week’s budget. And everyone’s making a huge deal about it. What is it? George Osborne will extend Help to Buy for new built homes until 2020, four years longer than planned. Back to that in a minute. Why is the exciting? Well during the housing bubble a few years ago, we commented that the whole affair was likely to end badly for speculators, over geared buyers (remember NINJA loans?) mortgage lenders and of course, homebuilders. It wasn’t just a lucky call. Plenty of intelligent, sober-minded pundits, mortgage brokers and analysts warned to anyone who was listening that the fundamentals were unsustainable and the craziness of house prices couldn’t last. Guess what. They were right. But now, these same insiders are telling us the opposite. The housing market is not just coming out of its slump. It’s snapping back fast. This means, until 2020, first time buyers can buy a newly built home with help from the government of up to 20% interest free for 5 years and with only a 5% deposit, The £6bn injection will help deliver an extra 120,000 newly built homes. It also means property values are unlikely to ‘drop’ any time soon as was predicted by many pundits, but actually increase in value between 20-25% over this period. It also means, the ability to borrow less money initially from the participating mortgage lender which means lower monthly payments and the rates are actually cheaper than H2B for existing homes. Don’t underestimate what a powerful tonic this is. As homebuilding will be up, the leading homebuilders will soon be prime beneficiaries. While the sector has already begun to lift off – along with sales and earnings – property prices are quite cheap and likely to lead the market higher in the second half of the year. Lookin’ Good Consider the Bank of England. Not only is it keeping interest rates near zero, but we are not expected to see rates rise until mid 2015. Even then, the forecasting rate curve will perhaps rise by .25%. But of course, if you remember, during the last boom lenders gave mortgages to anyone with a pulse and now that prices are recovering, they have suddenly discovered lending standards. In the process, they have boxed out some potential buyers, especially with the Mortgage Market Review, but on the whole, sensible lending is much more prevalent. While no-money-down mortgages may never (and should never) be common again – borrowers with decent credit are getting financed more easily. Plus, banks are selling fewer repossessions, and rising rents are making home ownership look attractive again. And since homebuilders have added little in the way of new construction over the last five years, the inventory of new homes is selling fast particularly with help to buy extending for another 6 years. Homebuilders are set to beat consensus earnings estimates by a wide margin in the near future. The equity loan scheme has so far helped over 25,000 households to afford to buy or reserve a new-build home, but this is set to increase with Osborne’s new announcement. This will reinvigorate the home building industry, contribute to a sharp increase in new housing starts and allow thousands of more first-time buyers onto the housing ladder. That gives homebuilders plenty of confidence as the spring buying season hits full stride, property prices should rise even further. Good investing, Mark Homer
Posted on: Thu, 20 Mar 2014 20:00:00 +0000
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