The mixed signals continue for the housing market today with a huge rise in lending for house purchase and two big rights issues by housebuilders not stopping longer-term worries.
The British Bankers Association (BBA) said 38,095 mortgages were approved for house purchase in August, an increase of 81% on a year ago. Meanwhile, Barratt and Redrow revealed plans to raise a total of £870m from the stock market.
On the face of it, that indicates the market is recovering rapidly and that the two companies believe this is the right time to start buying land again. Barratt’s annual results today showed stable prices and rising reservation rates and chief executive Mark Clare said the rights issue would ‘enable the Group to develop a number of its existing sites and to take advantage of land purchasing opportunities as they arise’.
However, the BBA argued that the 81% rise was an exaggeration based on an exceptionally low number last August and that low levels of customer demand and the limited number of properties coming on to the market would constrain lending. Backing for that view seemed to come from HM Revenue and Customs yesterday with stats showing that the number of home sales fell between July and August.
It’s also worth noting that on a seasonally-adjusted basis approvals were down slightly on July and that the 38,095 total was the lowest seen since 1997 with the exception of last year.
All but one of the major housebuilders have now announced plans for rights issues, prompting suggestions of a dash for cash to exploit the recovery. However, some analysts also pointed out that housebuilders will also need cash if they are unable to rely on house price inflation.
And Barratt’s announcement suggests that it for one is hedging its bets - not surprisingly since its £720m rights issue compares with the near £680m it lost last year.
It notes in its announcement today: ‘The amended financing arrangements are expected to allow the Group to take advantage of opportunities that may arise in a recovering market, as well as to provide an appropriate alternative framework, should a further downturn arise.’
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