UK housebuilders jump on a 2.5% deposit plan
Persimmon rose 15.3% on Monday, September 28, after the UK announced Your First Home, a proposed 20% equity loan for buyers putting down 2.5%.
Key takeaways
UK housebuilders rose on Monday after the government proposed a state loan that would let first-time buyers put down 2.5% on a new home. By early afternoon in London, Persimmon was up 15.3%.
In the morning a homebuilders index rose 16%, to its highest since March. By early afternoon the FTSE 100 was up 0.3%.
Brick-maker Ibstock was up 21%, and other building-materials shares rose with the builders.
The morning highs did not all last. Taylor Wimpey was up 11.8% after a high of 23.3%, Bellway 13% after 19.6%, and Vistry 9.7% after 19.5%. Berkeley was up 0.5% after a high of 7.3%.
Persimmon and Barratt Redrow gave less back. Persimmon's 15.3% came after a high of 16.9%, and Barratt Redrow's 13% after 15.5%.
Berkeley was the outlier by early afternoon
On Saturday, September 26, the housing ministry said a scheme called Your First Home would be confirmed at the Budget on Wednesday, October 28. It is for a first-time buyer in England, buying a new home from a developer that signs up. Someone buying an existing home is outside it.
The ministry expects a 20% equity loan, money tied to the home rather than cash the buyer has to raise. With the 2.5% deposit, a bank would lend the other 77.5%. The loan would be interest-free at first.
That is the shape of Help to Buy, the equity loan for new homes that began in 2013. A loan only for new homes lands on builders' sales, not on the rest of the market.
The National Audit Office found that from April 2013 to September 2018 the scheme backed 38% of new-build sales in England, and around 4% of all housing purchases. In 2018, five of the six largest builders sold 36% to 48% of their homes through it. The same review estimated around 78,000 extra new-build sales as of December 2018, and said the scheme had contributed to higher annual profits at those builders.
Sam Cullen at Peel Hunt said the firm expects about 20% of deals to be supported by the scheme, and sales volumes about 10% higher in 2028.
The price caps, the income cap, how much signed-up developers are expected to pay, the cost and the length of the interest-free period are still open. Those limits decide how many buyers can get the loan, and so how many homes the builders sell through it.
No buyer can use the loan yet. Registration is due to open by the end of the year, officials said.
The scheme would be funded from budgets the government already has, officials said. August borrowing was £3.5 billion above the Office for Budget Responsibility's forecast, and borrowing from April to August was £8.1 billion above it.
On October 28, Chancellor John Healey sets the caps, the cost and how long the loan stays interest-free. That is what decides how much new-build volume this scheme can add.
Frequently asked
What did the government propose?
Your First Home would be a 20% equity loan so a first-time buyer in England can put 2.5% down on a new home, with a bank lending the other 77.5%.
Who can use it?
It is for a first-time buyer in England buying a new home from a developer that signs up, and someone buying an existing home is outside it.
Can buyers use the loan yet?
No buyer can use the loan yet, and officials said registration is due to open by the end of the year.
What is still undecided?
The price caps, the income cap, what signed-up developers pay, the cost and how long the loan stays interest-free are still open, and Chancellor John Healey sets those on October 28.
