Housebuilders stay cautious despite sales boom

Housebuilders are remaining cautious about investing in new developments despite a much stronger than expected housing market over the summer, given concerns over the possible impact of the winding up of the government’s furlough scheme and a second wave of covid-19 infections.

Housebuilders spoken to by Housing Today about the state of the industry going in to autumn said there was still caution over investing in new schemes despite experiencing a rapid recovery in the housing market since lockdown rules were eased in May.

A raft of economic data in recent weeks has shown a rebounding of confidence in the housing market despite the UK already entering a recession of unprecedented severity, culminating yesterday in Bank of England figures showing that mortgage approvals for house purchases returned to close to pre-covid crisis levels in July.

Chris Brown, chair of regeneration developer Igloo (pictured, left), said sales had been “going gangbusters” over the summer, which had injected vital cash and confidence into development businesses, allowing some work on pipeline projects to proceed.

However, he said: “At the same time there’s still a real caution and a reluctance to invest in pipeline projects, in terms of land or planning. This caution is reducing with the market, but it’s real, and it means there’s a real gap in the future pipeline.

“Spending decision by us or our funders were initially stopped [in lockdown], and now they’re coming through – but it’s smaller schemes and investments, not the really big decisions.

“The reality is there are three huge downside risks – first the economic impact of the first covid lockdown, second the risk of a second wave and more lockdowns, and third is the risk of no deal or a bad deal Brexit, which would be particularly disrupting to the supply chain.”

His words were echoed by Larkfleet Group CEO, John Anderson (pictured, right), who said that sales had been “particularly strong” compared to a typical summer, due to pent up demand and the government’s stamp duty holiday.

However, he said there remained a number of threats to the market, such as Brexit and the lack of availability of high loan to value mortgages.

He said: “We are being cautious about the future. Our caution, however, reflects the widespread expectation that unemployment will rise when the furlough scheme is scrapped in October, potentially undermining consumer confidence.

“We need the chancellor to rethink the potential cliff-face finish to the stamp duty holiday in March, by either tapering the benefit or softening it beyond that date in some way.

“The government’s plans to introduce a means-tested and capped version of Help to Buy – at the same time the stamp duty holiday ends – could cause serious harm to the market, and this also needs addressing.”

This caution in the face of strong sales is reflected in Barratt’s annual results announced today, which show that sales completions in the six weeks to August 23 were 62% above the saem period last year. 

Despite this, chairman John Allan said: “The full extent of the economic impact being caused by COVID-19 is yet to become fully clear, and there remains uncertainty regarding the outcome of the ongoing negotiations regarding the UK leaving the EU.”

The comments come after the UK’s most profitable housebuilder, Persimmon, last month reported pre-tax profit of £292m for the six months to June, despite the impact of the pandemic, and said it expected to have delivered 45% of its legal completions for the second half of the year by the end of September. Its results statement said: “Our strong opening work in progress position and excellent build rate through the summer give us confidence in a positive second half outturn.”

Likewise data from the RICS and online property portals suggests the market has rebounded sharply since being all but shut down during lockdown. Yesterday the Bank of England said 66,281 mortgages for house purchase were approved in July, just a fraction below the number approved in July last year, and up from less than 10,000 approved in depths of the covid lockdown in May.

Marc Vlessing, chief executive of London-focused resi developer Pocket, behind the Pocket House (pictured, left), said he was optimistic for the market over the coming months, with only high-end developers at risk of seeing the current market bounce fizzle with the ending of chancellor Rishi Sunak’s stamp duty holiday in March next year.

He said: “We’re seeing no lack of demand for our product – we’ve just had one of our best months ever. It’s not just a post-covid bounce, it’s about the continuing level of unmet demand.

“My prediction is we’re going to see 12 strong months ahead, with good land buying opportunities and a reasonable contracting market.

“For higher end developers this may prove to be just a temporary bounce, but for those with a clear brand focused on the value end of the market, with strong design credentials it will be more long lasting.”

Despite this optimism, however, few housebuilders have given detail over how many new starts they are making, though many have made clear that they have prioritised delivering existing reserved homes since lockdown rules were eased.

At the start of August the Construction Products Association repeated its forecast, first made in May, that the covid crisis will see housing starts fall by around 60% this year, with output overall falling by a third.