Are the FTSE 100 house-builders the investment opportunities of a lifetime?
The Help To Buy programme has proved critical in helping drive the house-builders’ top lines, and so ongoing uncertainty over the future of the scheme unsurprisingly continues to weigh on the share prices of such companies.
Highlighting the jitters surrounding this issue, FTSE 250 business Redrow recently claimed that “clarity over Brexit and the future of Help to Buy would improve market sentiment.”
Whilst some government direction on the future of the initiative would be welcome, of course I think that predictions over a possible termination of the programme seem a bit far-fetched. Just last year the government announced it was ploughing an additional £10bn into Help To Buy, underlining its commitment to the scheme. And despite claims that Help To Buy has had a significant effect in inflating property prices in the UK, data actually shows that that less than 5% of all home sales in the UK involve the use of the scheme.
In fact, reinforcing suggestions that Help To Buy has had a favourable effect on the housing market, the Home Builders Foundation (HBF) recently estimated that some 170,000 properties have been sold with use of the programme, more than four out of five of which have been snapped up by first-time buyers.
What’s more, the trade body has suggested that the median household income for those using the scheme stands at around £49,000, shooting down claims that the programme is being widely taken advantage of by wealthier buyers that the programme was of course not designed for.
Cheap AND cheerful
Stewart Baseley, executive chairman of the HBF, has recently described Help To Buy “an unmitigated success [that] has delivered handsomely on all its objectives,” and also commented that “it has enabled hundreds of thousands of people to realise their dream of owning a home, the vast majority of whom are first time buyers on average incomes.”
Any government action that would see the number of new homeowners getting onto the ladder fall would be politically disastrous for any government, which is why I think the termination of Help To Buy, or even a significant alteration to the terms of the programme, after the current scheme expiry date of March 2021 is pretty unlikely.
What’s more, HBF head Baseley has said that the programme “has led to an unprecedented increase in house-building activity, created tens of thousands of jobs and boosted local economies the length and breadth of the country.”
Without the financial boost that the scheme has provided to the home-builders, the increases in housing supply that Britain so desperately needs could slow to a crawl. And no politician would want this to occur on their watch, needless to say.
At current prices the FTSE 100 house-builders can be picked up for next to nothing. Barratt Developments and Taylor Wimpey both carry a forward P/E ratio of 8.1 times; The Berkeley Group 9.5 times; and Persimmon just 8.6 times. Sure these businesses aren’t without their share of risk, as I have explained, but in my opinion these low multiples suggest that investor fears over these issues are overblown. Those wishing to pick up a beautiful bargain might want to think about buying into these businesses today.
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Royston Wild owns shares in Barratt Developments and Taylor Wimpey. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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