Tension over Brexit may have remained considerable, and this could continue to be the case through 2020 as difficult trade talks — and the possibility of a no-deal withdrawal from the European Union — hover into view. And as a consequence, the rip-roaring property price growth of recent decades has been consigned to history, as has the electric profit-making ability of the housebuilders.
Despite this uncertainty, however, for many first-time buyers, the opportunity to get on the housing ladder has been too good to pass up. The Help to Buy government incentive scheme continues to offer buyers free money to leap onto the ladder. Lending from the ‘Bank of Mum and Dad’ sits at record levels. Meanwhile, Britain’s lenders are locked in a fierce mortgage rate war and borrowers can thus enjoy rock-bottom rates, reduced fees and other bonuses.
More rates cuts on the way?
It’s clear that Britain’s economy is cooling as we move into 2020, and ordinarily one would think that this could start to weigh on homebuyer appetite. Recent industry data has shown little to no evidence of this, however. In fact, it’s possible the stagnating economy could actually boost homes demand as it could force the Bank of England to cut rates to jump-start things.
Bank officials (including governor Mark Carney and Monetary Policy Committee member Gertjan Vlieghe) have recently signalled that a rate cut could be just around the corner, and inflation data released on Wednesday has supported the case for a reduction in the Threadneedle Street benchmark.
According to the Office for National Statistics, consumer price inflation in the UK fell to 1.3% in December from 1.5% in the prior month. This is the lowest rate of inflation since November 2016 and gives the Bank more headroom to slash interest rates before long.
Indeed, foreign exchange trader Olivier Konzeoue of Saxo Bank said that a rate reduction now looks the more likely scenario when the MPC meets later this month. He thinks the chances of a cut now stands at 62% versus 50% before the inflation news came out.
Want to retire rich?
All things considered, it’s no surprise that City brokers largely expect profits among Britain’s homebuilder to keep moving higher. Sure, not at the rate at which they were before the summer 2016 Brexit referendum, but at a pace which is still conducive to supporting big dividends.
Vistry Group and Persimmon, firms that have both served up positive trading updates in mid-week trade, offer monster prospective yields above 6% and 8%. But Taylor Wimpey (whose 8.8% reading makes it the biggest yielder of all the UK-focused builders) and Cairn Homes (benefitting from the similar housing shortage in Ireland and offering a 9.2% yield), are worth a mention too.
So sizeable have yields been across the housebuilders in recent times, and so colossal Britain’s supply and demand imbalance, that I’m convinced these firms could provide titanic returns in the coming years. I certainly plan to hold both Barratt Developments and Taylor Wimpey for many, many years.
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Royston Wild owns shares of Taylor Wimpey and Barratt Developments. 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.