Belvoir, Harworth: Stocks likely to get impacted due to BoE’s new rules

Highlights

• The month of January 2022 saw the strongest yearly start for the UK housing market since 2005, according to UK’s biggest building society Nationwide
• After rising for six months straight, the average house price in the UK stood at £255,556 in January 2022.
• The Bank of England is planning to eliminate the affordability test, which would allow Brits to increase their borrowing for a mortgage.

The UK housing market has been booming despite disruptions caused by the pandemic. In 2021, the average house prices hit record-high levels in the UK due to many sops introduced by the UK government, like the stamp duty holiday, mortgage approvals for buying houses, and others. This trend continued as we entered the new year. The month of January 2022 saw the strongest yearly start for the UK housing market since 2005, as per UK’s biggest building society Nationwide.

After rising for six months straight, the average house price in the UK stood at £255,556 in January 2022. With house prices skyrocketing, it is becoming very difficult for Britons to climb the property ladder, especially for first-time buyers.

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At present, when borrowers take out mortgages, they have to face two tests. Firstly, the flow limit test limits the number of mortgages that can be offered to the borrowers at loan-to-income (LTI) ratios in the range of 4.5%-15% of the new mortgage lending. Secondly, the affordability test helps in evaluating whether borrowers can afford the mortgage if the interest rates go up to 3% or more as compared to the reversion rate.

According to news reports, the Bank of England (BoE) is planning to eliminate the affordability test that would allow Brits to increase their borrowing for a mortgage while maintaining the LTI flow limit to stabilise the housing boom.

A consultation has been launched by the Financial Policy Committee (FPC) in this regard. If the responses received are in favour of removal, then within a year, the test might be formally withdrawn.

Let’s take a look at some of the UK housing stocks that may be impacted by the removal of the affordability test.

RELATED READ: What does 2022 look like for global housing market?

© 2022 Kalkine Media®

Belvoir Group PLC (LON: BLV)

The market cap of UK-based property franchise group Belvoir Group plc stood at £89.50 million as of 28 February 2022. The group has delivered a return of 41.93% to its shareholders over the last one year as of 28 February 2022, however, it hasn’t performed well in 2022 and its year-to-date return stands at -10.31%. Belvoir Group plc’s shares closed at GBX 235.00, down by 2.08%, on 28 February 2022.

LSL Property Services plc (LON: LSL)

The market cap of the UK-based company offering residential property services, LSL Property Services plc, stood at £410.12 million as of 28 February 2022. The company has delivered a return of 50.39% to its shareholders over the last one year as of 28 February 2022, however, its performance was down this year with its year-to-date return standing at -5.37%. LSL Property Services plc’s shares closed at GBX 388.00, down by 0.51%, on 28 February 2022.

Property Franchise Group PLC (LON: TPFG)

The market cap of UK-based company Property Franchise Group PLC, which manages real estate properties, stood at £106.38 million as of 28 February 2022. The company has performed well and delivered a return of 73.68% to its shareholders over the last one year as of 28 February 2022, while its year-to-date return stands at 5.68%. Property Franchise Group plc’s shares closed at GBX 330.00, down by 0.60%, on 28 February 2022.

RELATED READ: UK housing market hits new high in Jan: 5 stocks to watch out for

Harworth Group PLC (LON: HWG)

The market cap of the UK-based company operating as a brownfield land developer and property regenerator, Harworth Group PLC, stood at £558.31 million as of 28 February 2022. The company has delivered a return of 48.29% to its shareholders over the last one year as of 28 February 2022. However, its year-to-date return stands at -3.61%. Harworth Group plc’s shares closed at GBX 173.50, up by 0.29%, on 28 February 2022.

Safestore Holdings Plc (LON:SAFE)

The market cap of the largest self-storage group across the UK, Safestore Holdings Plc, stood at £2,650.05 million as of 28 February 2022. The FTSE250-listed company has delivered a return of 60.63% to its shareholders over the last one year as of 28 February 2022. However, its performance was down in 2022 with its year-to-date return standing at -9.65%. Safestore Holdings plc’s shares closed at GBX 1,2733.00, up by 1.27%, on 28 February 2022.

Note: The above content constitutes a very preliminary observation or view based on industry trends and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.6 6