Major housebuilders safe from price declines, says Fitch

In a report out on 16 August the agency said firms such as Taylor Wimpey were sufficiently diversified away from London and south east England to withstand any major falls in demand coming from those markets after the EU Referendum in June.

The agency said although Brexit could spell negative sentiment across the UK property sector in the longer term, it was unlikely to lead to rating downgrades in the near future.

However, Fitch conceded UK regions were affected in different ways by Brexit. Demand for central London residential property for instance, in particular new apartment projects, has been negatively affected by a reduction in foreign inward investment, it said.

The industry was given a first taste of what’s to come in the London high end market when developer CapCo cut 14% – or £200m – off the valuation of its Earls Court development earlier in the year blaming “weakened sentiment in the central London residential market following the EU referendum”.

But national housebuilder Bovis reported a strong start to the year, with more than 90% of sales completed and the firm’s average sales price rising 14%. Completions of new homes were also up 5%, the firm said.

Fitch said while housebuilders could see their revenues fall from lower completions for new houses in the short term this, in turn, would reinforce the shortage of private accommodation in the UK, which has been underpinning residential property values.

Fitch said: “We expect Taylor Wimpey to manage demand reduction by deferring replacement land expenditure, reflecting the depth and quality of its short-term land (about 78,000 plots) further supported by its strategic land pipeline (about 106,000 potential plots).

“The UK’s residential property market has been more recently affected by tax changes, including higher Stamp Duty for properties worth more than £1m, an additional 3% Stamp Duty rate for second homes and lower tax relief on buy-to-let properties.

“We believe record backlogs and limited exposure to the London market will smooth the impact of any price declines for major housebuilders.”