It is easy to regard housebuilders’ glorious recovery following their post-referendum mauling as miraculous.
The likes of Barratt, Berkeley and Persimmon lost a third of their value as investors panicked following the Brexit vote, but most are now above their pre-referendum peak, with recent trading updates suggesting a sunny outlook for all.
Confused? Those outlooks directly contradict UK house price growth which, according to Nationwide, hit a muted 1.1 per cent between May and June, after a 0.2 per cent fall the month before. Pessimists suggest things could get worse: this week a group of economists warned the UK is heading for a massive correction, with prices falling as much as 40 per cent.
Whether you believe that or not, traders should be having a hard time finding the enthusiasm to invest in housebuilders. But they have a secret weapon: the help to buy scheme, which allows first time buyers to borrow 20 per cent of the value of a new-build home (40 per cent in London) from the government, effectively reducing the size of the amount they must borrow.
The scheme has driven a generation of buyers into the arms of housebuilders. With those who already own homes put off the idea of moving house by alarming headlines and thus pushing the number of homes on the market to an all-time low, first-time buyers have looked to new-builds. And Help to Buy means they skip a rung on the housing ladder: instead of buying a two-bedroom apartment, why not borrow from the government and own a three-bedroom house?
But Jefferies equity analyst Anthony Codling warns the scheme is simply pushing the problem to the next generation. “If I come along six years later and I haven’t got help to buy because it’s only available on new builds, how can I afford that home?”
Meanwhile, housebuilders are braced for the moment the government withdraws its support for the scheme: the Help to Buy Isa will close in 2019, although the equity loan scheme is due to be in place until at least 2021. Codling suggests just 56 per cent of new-build transactions would have happened without help to buy in place.
With the economy weakening, there are two ways forward: keep the scheme going and continue to artificially inflate house prices, or close it, and cause the UK’s already fragile construction industry to suffer. The government faces a quandary. Still, no one said market intervention is easy.