Housebuilders are standing by for their best spring selling season ever. Now that the trials of the icy winter are over, they are building units for all they are worth, confident of selling virtually anything, especially in the South East.
A post-Budget cut in base rates coupled with the onset of a mortgage war and the “mortgage certificate”, which provides would-be buyers with a guaranteed mortgage, is bringing customers to the sites in droves.
The biggest thrill, of course, is in the South East, but even in the less-favoured areas of the country new houses are selling briskly.
The power for the buying spree is coming from the sudden interest in mortgage lending which has engulfed the clearing banks and some other City institutions.
Lending against domestic property suddenly seems much more desirable than lending to governments of the Latin American and African continents. What is more, the banks feel they can do a better job of mortgage lending than the building societies.
Competition between the two types of institution is nothing new. For years they have vied with each other to attract savings, but the new area of competition in mortgage lending is leaving the borrowers and the builders sitting very pretty.
Rate-cutting began in earnest last month, when Lloyds Bank cut the mortgate rate on endowment mortgages for new customers by 1/2%. The move was followed by National Westminster and then by some of the building societies.
The big mortgage lenders initially saw the business simply as a Trojan horse through which they could offer a range of more lucrative and commission-generating services — insurance broking, personal finance and so on.
But it is now seen as a profit centre in its own right, with a wide enough margin between the retail rate at which money is loaned and the wholesale rate at which it is raised to attract the new entrants.
It is not only the banks. The National Home Loans Corporation shaded its rates down and two weeks ago the Household Mortgage Corporation was launched.
Household Mortgage Corporation aims to provide up to a billion pounds of mortgages within three years of its projected start this autumn, the mortgages being marketed through estate agents, insurance brokers and insurance companies.
The company will fund its operations through the issue of mortgage-backed notes and its shareholders include a number of UK and international financial institutions.
That billion a year comes on top of the billion allocated by Midland Bank alone, and suggests that house prices will be spiralling upwards to meet the amount of mortgage money being thrown at them.
Good news indeed for the housebuilding industry. In the wake of the Budget, housebuilding shares were very strong. Margins, especially in the South East, are already lush and look set to widen further, although the cost of building land is rising too.
The worry is that, if the glut of mortgage finance does create a very inflationary climate for house prices, the taps will be turned off too suddenly, leaving builders with stocks of land purchased at inflated prices.
The stock market does not seem too concerned about that possibility. For the first time in years, the major housebuilding shares have moved virtually in line with the stock market as a whole in terms of price/earnings ratio.
Wilson (Connolly), for instance, is trading at nearly 16 times estimates of 1986 earnings, while Wimpey and Beazer are both selling at more than 14 times. Countryside, which is concentrated in the London commuter belt, is trading at 13 times estimated earnings to September 1986.
The market, looking for reasons to buy, has decided that housebuilding is no longer a cyclical business and that the boom will go on and on. Old hands are not so sure.
