The outlook for housebuilders hinges on some key announcements this week, the first of which will come on 14 July, when the Bank of England’s Monetary Policy Committee is expected to cut interest rates to record lows.
BoE POISED TO SLASH INTEREST RATES
Lower interest rates could offer a boost to the housing market and construction industry, as cheaper mortgages will fuel demand and aggravate Britain’s chronic undersupply of housing.
Bank of America Merrill Lynch predicts policymakers will reduce rates to as low as 0.1%, with UBS forecasting that rates could flat line by the end of the year.
“In response to this economic deterioration, it is possible that the BoE (Bank of England) will cut rates as soon as its meeting on 14 July,” UBS said in an economic note. “Two rate cuts are likely over the remainder of 2016, taking rates down to zero.”
The capital banks are required to hold on their balance sheets has already been lowered to £5.7 billion, boosting their ability to lend by up to £150 billion. Given that total net lending was just £60 billion last year, supply of credit is unlikely to be an issue.
HOUSE OF LORDS TO ISSUE REPORT ON HOUSEBUILDING
On 15 July, the House of Lords Economic Affairs Committee will publish a new report: Building More Homes. The Committee has been investigating the crisis in the UK housing market which has seen home ownership levels fall and many unable to afford either to buy or rent suitable housing.
The Committee’s wide ranging report will assess the scale of the problem and set out bold recommendations to deal with the housing crisis. The report will also look at whether the Government’s ambition to build a million new homes by 2020 is sufficient or achievable.
BOVIS HOMES TO RELEASE TRADING STATEMENT
Following trading statements from Persimmon, Redrow and Bovis Homes, Barratt Developments is expected to release a statement on 13 July ahead of its financial results for the first half of the year. Investors will be looking for any changes in cancellation rates or transaction numbers.
Many housebuilders have been moved to issue trading statements after stock prices crashed following the EU referendum results. Statements so far have been cautiously optimistic, reassuring investors that housing market fundamentals remain strong and that it is too early to judge the impact of Brexit.