Housebuilder results have been generally positive but property is still a problem

Half-year results from the biggest housebuilders have been generally positive, with turnover, volumes and profitability rising modestly compared with 2010. This is reflected in the CPA/Barbour ABI private housing index which, at 104, strengthened for the second consecutive month in July. However, market fundamentals have weakened as 2011 has progressed, and with lenders’ ongoing reluctance to lend and a sharp deterioration in consumer confidence, housebuilders will face more challenging conditions in the second half of the year.

Low numbers of property transactions are a key problem. In the first six months of this year 422,000 residential properties in total exchanged hands, merely half of the level in the first six months of both 2006 and 2007. High deposit requirements continue to place the first rung of the ladder infuriatingly beyond the reach of many would-be first-time buyers, excluding much of this important source of new liquidity from the market. Buy-to-let activity is stronger than a year ago but remains a small component of the overall market, and uncertainty about house prices and the stability of the economic recovery is having a negative influence on owner-occupiers’ decisions to move. 

Gross mortgage lending in the first six months of the year was broadly flat compared with last year, but over 60% lower than in the first half of 2007.

The CPA/Barbour ABI index suggests a modestly positive outlook for private housebuilding in 2011 as a whole and the CPA predicts that starts will increase by 7% during the year. However, so long as demand continues to be restricted by lending constraints and weak consumer sentiment, a significant increase in the number of new homes delivered, and a return to levels seen in 2007, is unlikely.