Barratt in talks to sell loans book

City A.M. Reporter
Housebuilder Barratt Developments said it is in early talks with investors to sell part of its shared equity mortgage book, a set of loans which might whet the appetites of private equity or banks.

Britain's largest housebuilder by volume confirmed press speculation on Monday that it is mulling a partial sale of its portfolio of shared equity loans, worth £170m in total according to a source close to the deal.

Shared equity loan schemes enable a potential home buyer to secure a new home with a very low deposit.

The homebuilder, either by itself or teaming up with the government, acquires an equity stake that is normally around 25 per cent of the purchase price, sometimes rising to 50 per cent.

The remainder is financed by a deposit and mortgage, which must be repaid by the occupying home buyer in tandem with rent payments to the holder of the equity stake.

Analysts said the sale might attract interest from banks and private equity funds – looking to amass other shared equity portfolios – and banks.

"(Such a deal for banks) would act as a partial hedge against a mortgage book any way. So they would be getting a relatively regular income back from it," said Kevin Cammack at Cenkos Securities.

"Very often these things (shared mortgages) don't see out their full term. I know for a fact that one or two of the banks have looked at that sort of thing," he added.

Housebuilders have pumped almost £1bn into the housing market in the form of shared equity loans over the last three years, according to the Home Builders Federation. This has resulted in close to 30,000 sales.

A sale of shared-equity loans would free up capital, enabling housebuilders to invest in new land and focus on the core activity of building homes.

"I think all the housebuilders will probably consider trading on their shared equity book, but the caveat is, is what price will they get," said Chris Millington at Numis Securities.