The housebuilding sector is back in the spotlight over the Help to Buy scheme which has been such a strong earnings driver since its introduction in 2013.

A report from Reallymoving, a conveyancing and comparison website, suggests purchasers using Help to Buy are paying, on average, 10% more.

If it is true that operators are systematically overcharging Help to Buy customers then it seems likely the Government would take action.

However, Shore Capital analyst Robin Hardy says: ‘While we are not the biggest fans of the UK housebuilders we struggle to believe that a fraud on this scale is being perpetrated.’

Hardy points out that the National Audit Office identified a premium of just 1% when it probed Help to Buy back in June. He adds that if lenders thought builders were charging more for homes than they were worth they would refuse to lend on those properties.

He also observes that pricing on new homes is pretty transparent and that it is typically set before a housebuilder knows if a prospective buyer would be eligible for Help to Buy or not.

‘DISTORTING THE MARKET’

Hardy says: ‘Help to Buy is distorting the housing market but not, in our view, as is now being suggested.

‘It is pushing buyers to purchase larger homes which boosts builders’ absolute profits but not necessarily margins, it is causing buyers not to negotiate fully on price leading to a modest price premium, it is pushing more buyers into new build than might naturally want to because of the financial benefits & easier process of buying and it is causing problem with transaction chains by isolating former first time buyers in homes for which there are now fewer buyers as fresh first timers buy family-sized homes right out of the gate.’

However, risks associated with a no deal Brexit and potential problems that could crop up in the wake of a general election are a concern.

Investors will get their next opportunity to take the temperature of the sector when Bellway (BWY) reports its full year results on 15 October.

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Issue Date: 09 Oct 2019