If I had £3,000 to invest today, I’d be looking for FTSE 100 stocks that should hold steady even if the pandemic drags on. I think the housebuilding sector offers that opportunity, because it’s effectively being underpinned by the government.
Yesterday, prime minister Boris Johnson announced new measures to help first-time buyers onto the property ladder, creating ‘Generation Buy’ by offering young people low-deposit mortgages. The aim is to fix the problem of unaffordable deposits, where buyers cannot scrape together the necessary 15% deposit most lenders demand.
It will help fix FTSE 100 housebuilding stocks too. They’ve all climbed today as a result, and this isn’t the only state aid ministers are offering.
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These FTSE 100 stocks are underpinned
Sometimes it feels like the government’s number-one priority is to rush to the rescue of the housing market. Chancellor Rishi Sunak’s stamp duty holiday is driving activity, with Nationwide reporting that house prices climbed 5% in the year to September. That’s the fastest growth in four years, despite today’s massive health, jobs, and economic crisis.
The Help to Buy scheme is also propping up demand for new-build properties, and although that will be scaled back from next spring, it may be extended. Then there’s the Lifetime ISA, which gives first-time buyers a 25% bonus, worth up to £1,000 a year, when saving towards a deposit. Throw in all-time low interest rates, and the total stimulus is colossal.
The cumulative effect is to drive UK house prices to a record high of £226,129, Nationwide figures show. Which is great news for FTSE 100 stocks exposed to the property market, primarily housebuilders of course.
Yesterday, the UK’s biggest housebuilder Barratt Developments saw its share price jump 4.13%. It’s now up more than 27% in the last six months. Similarly, FTSE 100 stock Vistry Group jumped 3.78% yesterday, and trades 14% higher than six months ago. Persimmon jumped 2.41% and is now up an astonishing 56% in the last six months.
Berkeley Group Holdings saw a smaller gain of 1.33% yesterday but is, nonetheless, up almost 30% over six months. Taylor Wimpey is the sluggard among these FTSE 100 stocks, up ‘just’ 7% in six months.
These FTSE 100 stocks were on the front line of the Brexit shock, and the same happened when coronavirus struck. The housing market effectively locked down. But that seems to have created pent-up demand, rather than destroying it.
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Given the shortage of supply and the high demand for property, it will take major upheaval for prices to crash. Quite frankly, the government isn’t going to allow it.
Despite this, the housebuilders still look relatively cheap. Barratt is trading at 12.46 times earnings, Persimmon at 9.51 times, Vistry at 5.73 times, Berkeley 13.41, and Taylor Wimpey at just 5.38 times. Most have been cutting dividends but, hopefully, they will be restored once the worst of Covid is behind us.
In the meantime, demand for property looks set to remain healthy, as do the long-term prospects for housebuilders. They’re not as cheap as they were during the stock market crash in March, but these government-pampered FTSE 100 stocks still look tempting today. If I was putting £3k, or any other sum, into a tax-free Stocks and Shares ISA, I’d check them out.
