Last week, Chancellor of the Exchequer Rishi Sunak announced a stamp duty holiday for homes up to the value of £500,000. This could be a massive boost for the UK housing market. There are a handful of FTSE 100 stocks that may benefit substantially as a result.
FTSE 100 homebuilders
The UK’s largest homebuilders have seen their shares surge in value over the past few years. Companies like Persimmon (LSE: PSN), Taylor Wimpey (LSE: TW) and Barratt Developments (LSE: BDEV) have been able to capitalise on the UK’s undersupplied housing market.
Government initiatives such as the Help to Buy scheme and low-interest rates have helped buyers pay for new homes. They’ve also been a boon to FTSE 100 builders, which have been able to increase prices and use profits to fund the construction of new properties.
These market tailwinds are not going away any time soon. And the stamp duty cut should only help stimulate demand even further in the near term.
For firms like Persimmon and Taylor Wimpey, which specialise in building affordable properties, this could be a significant benefit. The companies have recovered quickly from the coronavirus pandemic. The latest trading update from Persimmon showed a 15% increase in forward order sales to nearly £1.9bn. That was before the duty cut was announced.
Persimmon’s FTSE 100 peer, Taylor Wimpey, has also published positive updates recently. According to management, at the end of May, the company had orders for 11,228 homes, worth almost £2.8bn. In the same period last year, the figures were 10,557 and £2.5bn respectively.
To help drive the construction of new homes going forward, the company recently raised £500m from investors. This will provide capital for more than 70 new construction sites according to management.
Barratt has not provided detailed figures on recent home sales. However, the company has said that it will return the money it had accessed from the government’s furlough scheme (circa £27m). In the same update, the firm also informed investors that sales started to recover significantly as the lockdown was eased.
Bright outlook
All of the above seems to suggest that the outlook for FTSE 100 homebuilders is bright. Demand for homes does not seem to have been severely impacted by the pandemic. Although a second wave of coronavirus and job losses could still destabilise the market, the government initiatives to stimulate growth may provide a cushion.
As such, now could be an excellent time to snap up a basket of FTSE 100 homebuilders while they are trading at low prices.
Shares in Persimmon are off around 10% since the beginning of 2020, even though demand for the company’s properties seems to have increased year-on-year. Meanwhile, shares in Barratt are off 32%, and shares in Taylor Wimpey are down 26% since the beginning of 2020.
The negative performance of these shares since the beginning of the year contrasts sharply with their recent positive trading updates. This suggests that they may offer a margin of safety at current levels and could generate attractive total returns for investors in the years ahead when owned as part of a well-diversified portfolio.
