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Deutsche Bank upbeat on housebuilders, thinks Help to Buy could be extended beyond 2023

“It is politically unacceptable for any government to neglect the housing market as the 2017 Election so starkly illustrated"

Bellway PLC - Deutsche Bank upbeat on housebuilders, thinks Help to Buy could be extended beyond 2023

Deutsche Bank remains upbeat on the outlook for UK housebuilders, with fundamentals intact and another “powerful wave” of government potentially on the horizon.

The German bank initiated coverage on all of London major housebuilding stocks on Tuesday and has ‘buy’ recommendations for five of them: Bellway PLC (LON:BWY), Countryside Properties PLC (LON:CSP), Persimmon PLC (LON:PSN), Redrow plc (LON:RDW), and Taylor Wimpey PLC (LON:TW.)

Only Berkeley Group Holdings PLC (LON:BKG) has a ‘sell’ recommendation next to its name. The rest – Barratt Developments PLC (LON:BDEV), Bovis Homes PLC (LON:BVS), Crest Nicholson PLC (LON:CRST), and McCarthy & Stone PLC (LON:MCS) – are all ‘holds’.

READ: Persimmon’s exposure to first-time buyers and the north gives it advantage over housebuilder peers

Some had speculated that the slowing economy, Brexit uncertainty and the looming Help to Buy finish date meant housebuilders would struggle to repeat their recent successes after years of record profits.

But Deutsche Bank disagrees: its number crunchers believe the tailwinds that have helped the valuations of several housebuilders rise to all-time highs remain in place, which should continue to support their lofty share prices.

“House building fundamentals remain intact, supported by low unemployment (3.9%, close to a 45-year nadir), mortgage rates at or close to record lows (driven by new entrants and regulatory change), powerful government support (Help to Buy runs until 2023) and a land market still yielding attractive returns,” Deutsche said in a note to clients.

The heavyweight bank added that more government support would likely be on its way, and it thinks there is a possibility that Help to Buy – dubbed ‘Help to Profit’ by critics – could be extended beyond 2023, when it is currently due to finish.

Politicians can't ignore housing any more

“It is politically unacceptable for any government to neglect the housing market as the 2017 Election so starkly illustrated,” said the analysts.

“The current government's target of 300k new homes a year from the mid-2020s feels ambitious and momentum is already fading.

“Another powerful wave of government support could lie on the horizon and we do not rule out a Help to Buy extension beyond 2023. In the meantime, yet another Stamp Duty overhaul could give a shot in the arm to housing volumes (c30% below previous peaks, despite a higher population).”

Quick facts: Bellway PLC

Price: 3297 GBX

LSE:BWY
Market: LSE
Market Cap: £4.06 billion
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