It seems as though the Bank of England is doing all it can to slow down the UK housing market without raising interest rates or implementing draconian measures. Indeed, the latest policy (announced this week) is a cap on the proportion of a bank’s lending that can be made to borrowers who are seeking to borrow more than 4.5 times their annual income. The cap is initially set at 15% of all loans, which is above the current level of 9%.
So it seems as though the cap will have almost no immediate effect and, furthermore, does not seem to be particularly restrictive. Certainly, caps from decades past were far tougher. With this in mind — and the fact that there is a dramatic shortage of housing supply to satisfy demand — now could be a great time to gain exposure to the housing market through these three housebuilders.
Until recently, Persimmon (LSE: PSN) had experienced an encouraging 2014, with its shares being up to 18% ahead of the FTSE 100. However, uncertainty surrounding interest rate rises has caused a pullback in the company’s share price in recent weeks, with them now being up just 3% so far this year. This means that they offer investors much better value — shares in Persimmon are now trading on a price to earnings (P/E) ratio of just 11.4. This compares very favourably to the FTSE 100’s P/E of 13.9, especially when you consider that Persimmon is forecast to deliver earnings per share (EPS) growth of 34% this year and 22% next year — well ahead of the FTSE 100’s mid-single digit growth prospects.
Sector peer, Bellway (LSE: BWY), also offers great value at current levels. Shares in the housebuilder trade on a P/E of just 10.8, which is well below the FTSE 100 P/E of 13.9 and, furthermore, very healthy EPS growth is forecast at the company. Indeed, it is expected to increase the bottom-line by 66% this year and by 23% next year, highlighting its strong value and growth potential. In addition, the company continues to offer extremely impressive dividend per share growth, with dividends per share forecast to increase by 24% next year, meaning shares in Bellway could yield as much as 3.8% in 2015.
Due to its focus on the London prime market, Berkeley Group (LSE: BKG) (NASDAQOTH: BKGFY.US) has seen its share price treble over the last five years. However, a pullback this year means that shares in the company are now trading at very attractive levels, with Berkeley Group’s P/E currently being just 10.5. Although EPS growth potential is lower than for Bellway or Persimmon, Berkeley continues to beat the typical FTSE 100 growth rate, with EPS forecast to increase by 7% next year. Due to the seemingly insatiable demand for high-end London property, Berkeley Group could be a winning play over the medium to long term.
Peter does not own shares in Persimmon, Bellway or Berkeley Group.