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Surging Home Prices Prompt Calls for More UK Homebuilding

Matt Clinch, special to CNBC.com
Monday, 20 Aug 2012 | 9:13 AM ET

New research suggests that a shortage of homes is causing house prices to soar in the U.K., with properties in England rising by 94 percent over the last decade and analysts warn that more needs to be done to stimulate house building to keep prices in check.

Construction worker in New York City.
Oliver Quillia for CNBC.com
Construction worker in New York City.

David Ritchie, CEO of house builder Bovis Homes , which managed to double its profit in the first half of this year, believes that more needs to be done to help first-time buyers.

“We could increase production if we could see greater demand from customers, particularly those first time buyers who are struggling.”

“We have to have a banking sector that is keen to lend and I think at the moment, and I understand why, I think there is a reluctance to lend particularly at that high loan-to-value,” he told CNBC Monday.

The National Housing Federation (NHF) released figures last week showing that house prices in England have increased three times as much as income in the last ten years, with the deposit needed to get a mortgage up by 386 percent.

Ritchie said government schemes like First Buy and New Buy have helped banks to lend, but more needs to be done to stimulate house building. Bovis Homes themselves have had to help first-time buyers in directly financing their deposits for homes.

David Orr, Chief Executive of the NHF says it’s getting increasingly harder for people to buy property in the current economic climate.

“A shortage of homes means the price to buy them is being pushed ever higher by the market, and out of reach of millions of hard working families,” he said in a statement.

“Unless we start building more homes people can truly afford to match the demand, this will only get worse.”

Giles Keating, Head of Research at Credit Suisse, says a stimulus for house building would be needed in order for the sector to become a more viable investment opportunity.

“I think investors have seen a recovery from very low levels, they’ve not seen really a move to a really strong growth path,” he told CNBC Monday.

“You need to get that credit moving and it’s not moving yet.”

Bovis Homes: Challenges Remain for First Time Buyers
David Ritchie, CEO of UK home builder, Bovis Homes told CNBC, the market is still demonstrating challenges, particularly around the availability of mortgages for first time buyers.

Markit Economics have released data showing that U.K. households are at their least pessimistic since December 2010, according to their household finance index, which is at its best level in two and a half years. But the evidence suggests that this news isn’t having an impact on first time buyers.

Henry Dixon, Fund Manager at Matterley Asset Management underlined the importance for government intervention and said he favors a push for construction as a whole, rather than purely house builders.

“We’ve seen under Thatcher, under Clinton, that if you have this big housing stimulated boom, it tends to bring down house prices quite dramatically in the aftermath of that,” he told CNBC.

“So I think we have to be quite careful there, but with construction I think that is absolutely what this country needs.”

Brenda Kelly, Senior Market Strategist at CMC Markets said she was worried about lower demand, despite the positive numbers from Bovis Homes.

“I think in some ways they can have a positive outlook but given the fact that the U.K. can’t necessarily be insulated by the euro zone downturn, then I would be a little reticent to get involved in that stock at the moment,” she told CNBC Monday. “So I think in some ways I would be cautious.”