Housing sector's health in the spotlight

Aug 24 2008 Business View by Duncan Tift

Further indication as to the strength – or perhaps the lack of it – of the UK’s housing sector will be evidenced this week with updates from leading builders Bovis and Taylor Wimpey.

While clues to the relative health of beleaguered lender Bradford & Bingley may also be forthcoming.

Let’s start with the latter first because unless the lenders free up liquidity there’s little point focusing on house builders because the second part of that generic terminology will become redundant.

B&B is in the mire – you don’t have to be an expert in the banking sector to know this. The buy-to-let sector to which it has strong exposure has collapsed and the bank’s business is seriously unappealing.

Evidence of this was the 27 per cent take up of its £400 million rights offer and Friday’s publication of its interims may only serve to make the picture gloomier.

Consensus forecasts for the first half are unavailable and the City has made no secret of the fact it is not holding its breath for a major improvement in its full year prospects.

Unlike Alliance & Leicester, would-be white knights have climbed on their trusty steeds and ridden off into the sunset rather than bail the bank out of its misery. Any subsequent rescuers seem few and far between.

Sad indeed, but of little surprise.

Anyone hoping that builders may be able to offer the housing sector a glimmer of hope are likely to be disappointed.

Bovis and Taylor Wimpey have both struggled in a difficult market and if they can offer any reassurance in their interims then it will be a surprise.

Persimmon came out with a 64 per cent drop in half-year profits last week, but did offer some hope with a forecast that the market could be beginning to stabilise.

If it has reached bottom then a cut in rates to kick start the sector may be on the cards but with inflation still not under control – let alone within Government targets – this appears unlikely for the time being.

Bovis or Taylor Wimpey – or maybe both – could use the opportunity offered by their interims to call for a freeing up of mortgage finance as any recovery can not take place without it.

Bovis, which publishes tomorrow, has already braced investors for a sharp cut in its dividend and predictions are that the fall in sales volumes could be around 30 per cent. Anything better than this would be a bonus.

Taylor Wimpey, Britain’s biggest housebuilder in terms of houses built, said recently that housing completions were down 33 per cent in the first six months of this year, while it has embarked on a vigorous cost-cutting review and axed jobs.

Despite this, the focus on the results is likely to be on future prospects and writedowns on the value of its land.

It worried investors last month when it said it had yet to agree a funding package and that it faced breaching “one or more” of its banking covenants next year if markets continued to weaken. Again, any reassurances it can offer will be welcome.