The shares that do best from Help to Buy

Momentum among housebuilders slowed down rapidly just before the summer, ending a spectacular recovery following the EU referendum crash. Concerns about an end to the government’s Help to Buy scheme and some disappointing company results made June and September particularly bad. However, recent events have put property stocks back on investors’ wanted list, but which ones should they be buying?

October started with a bang, with all 11 of the FTSE All-Share’s home construction stocks registering gains in the first two trading days of the month. Bovis Homes (BVS), Persimmon (PSN) and Barratt Developments (BDEV) led the way, all up over 4%.

That’s thanks to prime minister Theresa May, who used her Conservative party conference speech to announce that the Help to Buy scheme, which subsidises mortgages, will be extended beyond 2021. The government expects to find an extra £10 billion in the Autumn Statement on 22 November to further prop up the housing market.

While it’s a move that’s been criticised due to concerns around unaffordable house prices, it’s clearly a boon for the army of UK-listed housebuilders.

The biggest beneficiary will be Persimmon, broker Barclays tells us. The scheme is used in more than half the firm’s private sales. This reflects its focus on first-time buyers, low average selling price and regional presence, says analyst Jon Bell.

Taylor Wimpey (TW.), Barratt – the UK’s largest house builder by volume – Bellway (BWY), Crest Nicholson (CRST), Countryside Properties (CSP), Redrow (RDW) and Bovis should also profit, with around 40% of their private sales funded by Help to Buy deposits.

Will there be losers from the announcement? Bell says both London-focused Berkeley (BKG) and AIM-listed Telford Homes (TEF) make relatively low use of the scheme, while McCarthy & Stone (MCS) doesn’t use it at all.

One criticism of the scheme is that it is often used by people who could afford to buy homes without help. Bell believes this could make estate agents the biggest losers.

And housebuilders have issues, too. The sector was the only area of expansion in IHS Markit/CIPS’ latest UK construction survey, although growth momentum did ease to a six-month low.

Still, all bar McCarthy & Stone (down 20%) are up by at least 30% since 24 July, making the sector one of the best performing in that time. Barclays has already made the case for further gains at Bellway and the foundations continue to be laid for others to follow suit.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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