Investors in the housing market were given further reason for cheer this week following latest numbers by the Council of Mortgage Lenders (CML). The body advised that a colossal £20bn worth of gross mortgage lending had occurred during August, the third successive month of robust annual lending growth. Last month’s figure was up 12% from a year earlier.
The numbers led CML chief economist Bob Pannell to comment that “mortgage lending is currently enjoying its best spell since 2008, on the back of a pick-up in house purchase and remortgage activity over the summer months.”
And fresh positive jobs data this week suggests that lending should continue to rise nicely thanks to Britons’ improving wealth levels. On Wednesday the Office of National Statistics advised that average wage growth clocked in at its strongest for more than six years during May-July, at 2.9%. On top of this, a 41,00 -rise in the number of employed people helped drive the jobless rate lower again, to just 5.5%.
The potential impact of rate hikes by the Bank of England continues to hang over the housing sector, and the aforementioned employment data has lent further support to the idea. But the Monetary Policy Committee (MPC) remains wary of the risks of a Chinese ‘hard landing’ on the domestic economy, not to mention the impact of patchy conditions in the eurozone. Consequently the MPC voted by a resounding 8-1 at its latest meeting to keep the benchmark locked at record lows.
These problems are not likely to disappear anytime soon, and with inflation also continuing to flatline, there is no real pressure on the Bank to lift rates in the near future.
Homebuilders heading higher
This backdrop naturally play into the hands of the UK’s major housebuilders, with the shocking supply/demand imbalance in the homes market already driving earnings through the roof at these firms.
Construction play Taylor Wimpey (LSE: TW) advised in July that revenues advanced more than 12% during January-June, to £1.3bn, a result that pushed pre-tax profit a third higher to £238m. The business advised that “sales rates have been above expectations and sales price growth has increased” in recent months.
Taylor Wimpey is not alone, with bubbly news from Crest Nicholson (LSE: CRST) and Bellway (LSE: BWAY) providing further evidence of the housing market’s strength. The former saw revenues explode 38% higher during October-April, to £333.2m, while its rival announced in August’s update that home completions rose 13.2% in the year to July 2015.
Lending activity to keep on rising
But it is not just the homebuilders who are benefitting from these conditions, as a steady increase in the value of houses boosts loan sizes doled out by the likes of Lloyds (LSE: LLOY). Britain’s biggest mortgage lender — which currently provides 1 in 4 new home loans — advised in July that gross mortgage lending hit a colossal £16bn during the first six months of 2015.
And I believe rising affluence levels up and down the country should keep the number of loans being signed off at Lloyds moving skywards, great news for sales across the UK’s homebuilding sector.
