UK Homebuilders Need Interest-Rate Crutch

Homebuilders in the UK still have tough times ahead and need large interest-rate cuts quickly to become attractive for investors again, officials and analysts said Monday.


A combination of tighter lending conditions and a shortage of homes keeping prices at levels too high for first-time buyers has caused a fall in the volumes of transactions in the housing market over the past few months.

"Overall, the UK housing market for both second-hand and new homes is fairly weak," Malcolm Harris, CEO at Bovis Homes, told "Power Lunch Europe."

"The lending criteria has tightened … we have a lot of young people now who left the university with debts and … they have to look how they will raise that finance to get mortgages," Harris added.

Bovis Homes reported lower profit for last year and warned that house sales this year, already down 20 percent, would fall further if the Bank of England does not cut rates.

"I think it's all about the speed now at which interest rates change," Harris said. "The cost of finance and availability is the key problem for the whole industry."

Very Volatile

Bovis shares fell more than 14 percent on Monday. Homebuilders' shares have been very volatile since the subprime crisis in the U.S. started to unfold, with investors worried that the credit crunch will hit an already-inflated propertymarket.

"I'm not sure I would be buying (homebuilders shares) in these markets," Tony Craze, stockbroker at, told "If you are going to be buying them, take a very long view."

The shares may take three, possibly even five years to recover as "the UK housing market is only going to be tricky," Craze added.

Bovis is the last major homebuilder to report 2007 results. Taylor Wimpey reported a 19 percent fall in its forward orders last week, Redrow said it had declines of 10 percent, Persimmon of 19 percent and Barratt of 7 percent.

"Persimmon is the only one we'd be looking to buy," Craze said. "It has a very good land bank and very good management."

"They can just sit on that land and when the market starts picking up again, they can build," he added.

British house prices fell 0.3 percent in February, but this is still not enough to help first-time buyers secure a home, according to data from mortgage lender Halifax.

Some of the buy-to-let flats may come on the market as the owners struggle to refinance their mortgages, but even they will not cover the supply shortage, and the Bank of England is not likely to cut rates by as much as needed to boost the housing market, for fear of inflation, analysts said.

"I don't think we're going to see a huge drop in home prices, maybe a few years with no growth," Craze said.