UK house prices rose strongest since 2016: Focus on Persimmon and Grainger

Summary

  • Prices of British houses recorded their biggest upward movement in August 2020 since 2016: Halifax house price data.
  • In August 2020, the house prices in the UK grew by 5.2 per cent as compared to August 2019.
  • It was for the first time that the price of houses in Britain were recorded at £245,747, crossing the £245,000 mark.
  • A closer look at the performance of two housing companies: Persimmon plc and Grainger plc

The prices of British houses in August 2020 recorded their biggest upward movement since 2016 as per the latest data from the Halifax House Price Index. This index is run by IHS Markit, the research & analysis company and is considered to be the UK’s longest-running barometer for the property market. We present the key highlights of the report by Halifax and take a look at the two leading companies in the segment- Persimmon and Grainger.

According to the latest data from the index, in August 2020, the house prices in the country grew by 5.2 per cent as compared to August 2019. In August 2020, the prices registered month-on-month growth of 1.6 per cent from July 2020. It was for the first time that the prices of houses in Britain were recorded at £245,747 or moved beyond £245,000.

Halifax believed that increased activities in the property market post easing of the lockdown restrictions scaled up the home prices. The company observed that prices rose due to a release of pent-up demand as some buyers wanted to shift to bigger properties in addition to the temporary cut on stamp duty announced by the finance minister, Rishi Sunak in July 2020. It is to be recalled that in order to bring back the excitement in the property market, the government announced a property tax holiday or stamp duty on properties that cost up to £500,000.

Given a short-term boost because of these optimistic factors, Halifax felt that such rise in prices is not expected to be sustainable in the near future when these support measures would come to an end and the country's wider macroeconomic scenario would start reflecting the impact caused by the coronavirus-led crisis. The rise in house prices is against the unfavorable impact of the ongoing crisis on people’s earnings and income prospects.

The prices are most likely to scale down in the medium-term as the crisis would continue to see rise in unemployment, observed Halifax. Many other experts also agreed that the present surge in prices would not be able to resist the realities of the economy for a long time, especially if the economy weakens further in autumn this year and by the scheduled end of the stamp duty holiday in March 2021.

On the other hand, some industry insiders observed that the recent surge in house prices or a mini boom has shown that the property market witnessed a great period of business activity. The number of homes for sale is rising with a significant bounce back in mortgage approvals. In the first week of September 2020, the Bank of England (BoE) stated that the number of mortgages approved jumped from 39,900 in June 2020 to 66,300 in July 2020. In comparison to pre-pandemic month of February 2020’s number of 73,700 housing loan approvals, this was 10 per cent lower. It has been observed that post easing of the lockdown restrictions, houses located in rural and coastal areas gained popularity as Britishers changed their preferences due to requirements of work from home during the pandemic.

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Stock performance of two leading companies from the housing sector – Persimmon plc and Grainger plc

Persimmon plc (LON: PSN) is one of the UK’s leading house builders. The company recently announced its half year results for the six months ended 30 June 2020. Despite the shut down due to the coronavirus pandemic, the company came out stronger that emphasizes on its processes and systems of working. It completed around 4,900 new homes along with significant improvement in its customer care services.

Persimmon showed a tremendous beginning to the second half with a 49 per cent year-on-year rise in average weekly private sales rate per site, since beginning of July 2020. Its current forward order book of approximately £2.5 billion is a 21 per cent jump from last year. The home builder said that its strong opening work in progress position and excellent build rate through summer of 2020 provides it the confidence for a positive second half. Persimmon expected that by the end of September 2020 it would be delivering 45 per cent of its estimated new home completions for the second half. The company proposed a modest interim dividend of 40p per share.

Highlights from Persimmon’s half-year results ended 30 June 2020

On 9 September 2020, at 9.10 AM, the company’s stock (LON: PSN) was trading at £ 2,490.00 down 0.52 per cent from its previous day’s close of £ 2,512.00. The 52-week low high range was recorded as 1,534.50 and 3,298.00. With a market capitalisation (Mcap) of £ 8,011.93 million, the stock provided a negative return on price, which was minus 7.99 per cent on a year to date (YTD) basis. The total volume of shares traded at the time of reporting was recorded at 66,634.

Also read: Housing market trends: Boom continues with £37 billion summer sales

Also read: Has Sunak’s Stamp Duty Holiday Led to The Upbeat Demand Scenario for The UK Property Market?

Grainger plc (LON: GRI) is known as Britain’s largest listed company in the segment of residential landlord. It is a leading build to rent and private rented sector (PRS) company in the UK. The company came out with its half year results for the six months ended 31 March 2020 in mid-May 2020. The company showed considerable resilience during the coronavirus pandemic. It collected high amount of rents by showing good growth in the rental business, besides occupancy levels exceeding 97 per cent.

During the pandemic, the company stressed on three important aspects of innovation, communication, and improvement as it brought new ways of serving its customers remotely by using relevant technology and virtual viewings. The company undertook training for its employees to emerge stronger from the crisis. Its dividend policy would be maintained with a 6 per cent increase in its interim dividend. Grainger’s focus would rest on the continuity of its service to the customers, besides delivery of new rental homes. It would prioritise the health and safety of its employees, customers, and suppliers.

On 9 September 2020, at 9.13 AM, the company’s stock (LON: GRI) was trading at £ 310.00 down 0.26 per cent from its previous day’s close of £311.40. The 52-week low high range was recorded as 207.40 and 338.00. With a market capitalisation (Mcap) of £2,097.78 million, the stock provided a negative return on price, which was minus 0.83 per cent on a year to date (YTD) basis. The total volume of shares traded at the time of reporting was recorded at 54,580.

Conclusion

The rise in price for UK houses in August 2020 reaching its highest levels since 2016 is a significant development for the country’s property market. The recent surge in sales and mini boom in the housing market has been attributed mainly to the pent-up demand due to the coronavirus lockdown. People realized the need to move to bigger and spacious homes to accommodate the demands of work from home. The temporary stamp duty holiday announced by the government has also accelerated the activities in the market. However, many experts agree that the uncertainty of the speed of economic recovery, rising unemployment numbers, and end of the stamp duty holiday in March 2021 might not be able to sustain the momentum for long.

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