Wall Street Journal: Private U.K. house building is showing increasing signs of a recovery

By Ilona Billington

Private U.K. house building is showing increasing signs of a recovery of confidence in the key part of the struggling construction sector.

The value of new projects started in the second quarter of this year are 40% higher than in 2011, after rising 30% on the year in the first quarter, according to data out Monday from construction industry analyst Glenigan construction, whose research team closely tracks the progress of every building project going through the U.K. planning system.

And, a 57% pickup in planning approvals in the three months to May suggests demand for new homes is rising, likely due to the NewBuy scheme — where the government will guarantee mortgages with just a 5% deposit for newly built properties.

“The weak economy and a banking sector that is seemingly loath to lend have constrained the private housing market over the last two years,” said Allan Wilen, economics director at Glenigan.

“However, developers have cited increased demand from first-time buyers, spurred on by government incentive schemes, as one of the main reasons behind an increase in building.”A trading update published last week by U.K. housebuilder Barratts Development PLC supports that view.

Profits are up, operating costs and debt are down while new private sale orders have risen 35% from a year ago.

“Looking ahead, we expect the Government’s housing initiatives, in particular its mortgage indemnity scheme NewBuy, to continue to provide the industry with support,” Barratts Development said in its interim statement.

This is good news for house builders, and for the UK economy. And, it may also indicate that the coalition is on the right track with its house building and mortgage schemes, the latest of which — Funding for Lending — was announced in more detail last week by the Bank of England and the Treasury.

This scheme targets lenders directly, offering them a cheaper supply of funds from the central bank, but only if they use those funds to make loans to homebuyers and companies.

It is hoped that if lenders offer loans and mortgages at more reasonable rates to UK consumers the economy could receive a much needed boost while also protecting it from the euro zone debt crisis.

There is some uncertainty over how big an impact the scheme will have. While supply of loans and mortgages should recover through the FLS, whether or not Britons want to take-on more debt, even at cheaper rates, is largely still unknown.

The House Builders Federation executive chairman Stewart Basely says the scheme could work out well for UK builders.

“The success of the scheme is in the hands of the mortgage lenders,” Mr Basely said. “If they take advantage of the FLS and reflect its lower funding costs in lower mortgage rates, then we should see an increase in new home buyers. This in turn will bring a much-needed increase in economic activity and create tens of thousands of jobs across the country.”

http://blogs.wsj.com/source/2012/07/16/government-support-boosts-private-u-k-house-building/