UK’s housebuilders are getting a drubbing this morning (down 1% to 3%). A non-exhaustive handful of reasons can explain poor performance for what is a much-loved sector for retail investors.

1. Yesterday’s more balanced view from the Bank of England (BoE) on interest rate outlook, with economic growth holding up surprisingly well, reduces the probability of another rate cut and/or more stimulus. High street banks aren’t exactly offering borrowers rates as attractive as the historically low levels the Old Lady of Threadneedle is offering the banks themselves, but any threat of higher interest rates counts as a negative in terms of property market sentiment. Think of all those on Standard Variables and trackers mortgages.
2. A very weak pound sterling has sent the BoE’s inflation expectations through the roof. The potential for pressure on household financing could well hold back not only already very stretched first-time buyers but existing homeowners hoping to try and climb another rung on the UK’s fabled win-win property ladder.
3. Estate agents expect a steep rise in rents to due to measures against buy-to-let curbing property supply. Less supply may hinder chains and thus transactions.
4. Yesterday’s High Court ruling on Parliament’s ability to trigger Article 50 without a vote may have increased ever so slightly the chance that Brexit never happens possibly even delaying PM May’s end-March trigger goal. Adding another layer of near-term Brexit uncertainty (Supreme Court appeal ruling in Dec) for consumers and businesses alike is simply something the sector doesn’t need.
5. While UK House Price data is famously mixed, Nationwide’s suggesting on Tuesday the first monthly stagnation in 15 months, and slowest annual price rise in a year (sales transactions -10% YoY), will add to concerns that a rising market may finally be tiring and that aforementioned government measures are beginning to bite.

Mike van Dulken, Head of Research, 4 Nov