Reprieve for housebuilding shares

Oct 2 2007 by Graeme King, The Journal

HOUSEBUILDING company shares received a welcome reprieve from the hefty selling of last week as the City consensus view is that there will be no movement in interest rates when the Monetary Policy Committee meet to discuss the position later this week.

Bellway’s share price lifted to close at 1,039p, while Barratt Developments’ share price climbed to 750p.

Last week Barratt Developments reported a robust set of results for the trading period to the end of June but warned that recent sales, especially in the Midlands and the North of England, had suffered downward pressure following the fallout from Northern Rock.

Nevertheless, the company has taken steps to try and ease the burden on customers when buying a new build home.

Barratt is the first UK housebuilder to sign up to a new scheme recently launched by insurance company Zurich which allows borrowers to defer paying a cash deposit until the property is completed.

For a fee, the customer can buy a property deposit guarantee to give to the housebuilder in lieu of a cash deposit.

Deposits can typically be up to 5% of the value of the property and are generally paid immediately upon reservation. Barratt believes that the new scheme will simplify the house buying process.

Otherwise, on the 10th anniversary of the demutualisation of Northern Rock, the share price of the beleaguered mortgage bank fell heavily to an all time low of 132p amid renewed fears that any bid for the company may be sharply lower than the current share price. Rumours circulated the market about potential interested parties, with hedge funds JC Flowers and Cerberus in the frame.

It is believed that the company has now borrowed almost £8bn from the Bank of England after it pledged emergency funding.

Christine Hawdon is an assistant director of the Wise Speke division of Brewin Dolphin Securities Ltd.