Persimmon, Bellway and Taylor Wimpey’s share prices have all declined this year. These falls come despite continued demand for new homes. To encourage more growth in the housing sector, UK Chancellor of the Exchequer Kwasi Kwarteng announced a cut in stamp duty as part of his mini-budget. However, the fallout from the budget has seen mortgages pulled from the market and the spectre of further interest rate rises.
Persimmon [PSN.L], Bellway [BWY.L] and Taylor Wimpey’s [TW.L] share prices have all failed to keep pace with the FTSE 100 this year. Persimmon’s share price has fallen 57% this year, as of last week’s close. Bellway’s share price has performed marginally better having dropped 48% this year, while Taylor Wimpey’s stock is down almost 50%. These declines are far steeper than the FTSE 100’s 6.81% decline this year.
However, the homebuilders have continued to see demand for new homes. UK house prices have also continued to grow. In the year to 31 July, house prices grew 15.5%, up from 7.8% in June, according to data from the Office of National Statistics.
To further boost the UK housing market, Chancellor of the Exchequer Kwasi Kwarteng announced a cut in stamp duty in his recent mini-budget. Yet the fallout from the mini-budget has seen mortgages pulled from the market and the spectre of further interest rate rises, which could hurt business for Persimmon, Bellway and Taylor Wimpey.
Homebuilder stocks fall after mini-budget
UK Chancellor of the Exchequer Kwasi Kwarteng confirmed a stamp duty cut as part of his mini-budget. Coming a year after the stamp duty holiday ended, the mini-budget was accompanied by Kwarteng’s announcement that no duty would be paid on the first £250,000 of a property purchase.
In theory, rising the stamp duty threshold from £125,000 to £250,000 should be a good thing for both buyers and homebuilders. However, Robin Hardy in the Investors Chronicle suggests that the changes introduced are “small beer”. Hardy points out that the maximum cut for most home buyers is £2,500, well below the £15,000 that buyers were able to save during the pandemic-era stamp duty holiday.
The prospect of rising interest rates could overshadow the potential benefit of cutting stamp duty. Bank of England chief economist Huw Pill said last week that it was likely the bank would have to respond to the income tax cuts put forward by the chancellor.
“In my view, a combination of the fiscal announcements we have seen will act as a stimulus to demand in the economy,” Huw said at an International Monetary Policy Forum meeting. “It is hard not to draw the conclusion that this will require a significant monetary policy response.”
There are also more than 2m borrowers who will need to remortgage between now and 2024, according to Bank of England data. Should interest rates dramatically increase, those remortgaging will face a sharp rise in payments. Some could be forced to sell, which would force down house prices.
The fallout from the mini-budget led to Persimmon’s share price falling 8.3% last week, with Bellway and Taylor Wimpey down a respective 11.2% and 10.8.% in the same time period.
Up until now, homebuilders had proven resilient to the wider macroeconomic conditions. Persimmon said that demand for new homes was up 1% year-on-year in the six months up until 30 June 2022. Revenue came in at 1.69bn, with profit before tax for the period of £439.7m. The average selling price for a new home was £245,597, up from £236,199 in the same period last year. Persimmon said that it was on track to build 14,000 to 15,000 homes this year and was sitting on £0.78bn in cash.
Bellway reported recorded record housing revenue, up 13% year-on-year, in its results covering the year up to 31 July 2022. The homebuilder said that it had a strong order book of 7,223 homes and was aiming for an annual output of 12,200 homes by year ending 31 July 2023, representing a 20% volume growth over a two-year period.
Taylor Wimpey said that the housing market continues to be “resilient despite inflationary pressures in the wider economy and recent rises in the Bank of England base rate”, in half year results published 3 August of this year. Taylor Wimpey expects full year results to be at the top end of its consensus range, with operating profits pegged between £873 million to £924 million.
Taylor Wimpey added that “there remains good availability of attractively priced mortgages”. However, as a result of the mini budget, 40% of mortgages have now been withdrawn from the market since the mini-budget, according to Moneyfacts data. This could well mean a future drop in sales as people struggle to secure mortgages.
The knock on effect of higher interest rates and withdrawn mortgage products is likely to factor into these homebuilders results. Bellway will update the market with a trading statement on 18 October. Persimmon and Taylor Wimpey will release trading statements on 8 November and 9 November, respectively.