UK housing market under pressure

Monday, 25th February 2019 11:28 - by Rajan Dhall

This morning Persimmon shares have taken a beating after UK press reported that they might not be able to continue taking orders under the 'Help to buy' scheme. 

It has been said by a 'source' close to UK housing minister that James Brokenshire is "increasingly concerned" by the company's practices.

Shares in the UK housing sector have been recovering after the market was getting increasingly worried about the period post-Brexit period and adding to these woes the housing form of QE (Help to Buy) is coming to an end.

Since late last year, Persimmon stock has recovered around 35% on the Friday close last week as the Brexit deal was becoming increasingly more complicated and therefore softer (in the opinion of market participants). The news today sent the share price 6% lower as much of the companies revenue is made up of sales with the first time buyer scheme. 

What seems to be the problem?

It has been said that the UK housing minister is getting concerned about the build quality of the new homes and the leasehold schemes that are in place.

Leaseholds are commonplace when it comes to new builds but if you pay ground rent and service charge the terms of payments are subject to price rises and renewals. It is not clearly laid out that these fees are variable and the owner who charges the ground rent and service charges can change them sometimes at will. 

This makes selling on the property problematic and it could impact the value of the home. 

Longer-term I see more issues for the housing market as Brexit could impact the demand balance. Also unless help to buy is extended it will become increasingly difficult for first-time buyers to get on to the housing ladder and afford the mortgages being sold. Having said that the sector has been on a good run and if they all slow down the rate of construction this will affect the supply chain and balance the market. Either way, the future is uncertain for the big homebuilders.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.