Broker snap: 'Don't panic' housebuilders, says UBS

29th Nov 2013 10:08

'Don't panic' is the message being given to housebuilders by UBS after the Bank of England (BoE) announced that they are removing the Funding for Lending Scheme (FLS) to support mortgage lending from 2014.However, the bank warned of other more serious threats to the industry and the potential for further action by the government.Share prices in the housebuilding and construction sector took a hammering on Thursday after the BoE said that support for household lending is no longer necessary after housing starts and house prices rose 24% and 8% in the last year, respectively. Instead, the BoE is focusing solely on lending to small businesses."While the scheme was an effective catalyst in normalising funding markets in the UK, we believe the market is now functioning more efficiently, and that increased mortgage availability and falling mortgage rates are not solely driven by the FLS," UBS said.The bank explained that the current drawdown of the FLS stands at just £17bn compared with the original potential for £80bn with a material proportion not linked to mortgage lending."The market has normalised since August 2012 (time of launch) and borrowing rates have come down 120bps since then, while major banks (HSBC, Barclays, RBS) have increased their mortgage loan books by 8-9% this year."On the whole, the bank said that while it has been an important catalyst for the housing market, the withdrawal of the FLS should not have a detrimental impact."We believe the sector still offers value despite [Thursday's] announcement, trading at 1.5x tangible net asset value (on 2014 estimates) versus our target of 1.7x. We see most upside in Bovis, Barratt and Bellway, but we also have 'buy' ratings on Berkeley, Redrow, and Taylor Wimpey. Looking ahead, UBS said that a more significant risk - alluded to in the BoE statement - would be a cap on the maximum loan-to-value (LTV) that can be offered to borrowers. Meanwhile, another option outlined is to give the BoE the power to force banks to hold extra capital against risky lending."This appears to be at odds with the forthcoming Help to Buy scheme, which is supporting 95% LTV loans from Jan '14. We believe the BoE is taking the reasonable step of announcing early that it will not let the market overheat."BC