Skip to content

CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

What does the coronavirus crisis mean for UK housebuilders?

UK housebuilders are bunkering down as the coronavirus brings the market to a halt. Cash flow will be under pressure and many have already decided to postpone or suspend shareholder returns as a result.

Video poster image

Coronavirus pushes pause on UK housing market

The UK housing market has effectively ground to a halt as the UK government’s measures to stop the spread of coronavirus makes it virtually impossible to buy, sell, rent or lease a property. The government has released guidance that states ‘home buyers and renters should, where possible, delay moving to a new house while measures are in place to fight coronavirus’.

And, despite the government urging that ‘there is no need to pull out of transactions’, UK housebuilders and property portals have all seen a slump in activity and reported an increase in cancellations. Both buyers and sellers are deciding now is not the best time to make such a big financial decision.

Even those willing to push ahead will only be able to get so far along in the process before they hit a brick wall. Social-distancing measures make it near impossible for a transaction to go through as physical viewings can’t happen and the key surveys that are needed to convince the bank to provide a mortgage can’t be completed.

‘Advice for people to stay at home and away from others means you should not invite unnecessary visitors into your home, including: property agents to carry out a market appraisal or take internal photographs prior to marketing your home; and energy performance certificate assessors,’ the government warned in March.

Plus, while the major UK banks have agreed to the government’s request to extend existing mortgage offers for an initial period of three months to encourage people to delay moving where possible, their appetite to issue new mortgages dwindles when uncertainty like this arises.

How will the coronavirus impact house prices?

The housing market had been given a boost in January as the general election provided some certainty, but demand has slumped across the board since the coronavirus outbreak started to take hold. UK housebuilders have said more people are pulling out of orders for new builds while property portals have seen steep declines in buyer enquiries – with Zoopla reporting a 40% drop in buyer demand in the week to 22 March.

The decline in demand will worsen the longer the UK remains in lockdown. Zoopla has said monthly transactions could fall by as much as 80% in any individual spring month and forecasts an overall drop of 60% in the three months to June. Estate agents Savills believes the number of transactions completed in 2020 could be 27% to 45% lower than it previously anticipated before the coronavirus outbreak began to take hold.

‘We anticipate transaction levels are likely to be most significantly impacted over the next three months, particularly with restrictions in place limiting people’s ability to leave their homes. In China property transactions were at or around zero for the three weeks following movement restrictions and have since (two months later) recovered to 50% of the four year average,’ Savills said.

‘If transaction activity were to fall to between 20% and 40% of the five-year average by June and remain there until September, total transactions for 2020 would be between 566,000 and 745,000. This is between 27% and 45% lower than the 1,027,000 transactions we forecast for 2020 in November last year,’ the estate agent added.

It is important to understand that this downturn isn’t being caused by a financial meltdown. There will be a temporary dip in house prices but only because there will be so few transactions being completed. Savills expects the drop to be in the region of 5% to 10% and says the pandemic should have a ‘more limited and shorter-lived impact on house prices’ than in the recession in the early 1990s or the most recent financial crisis.

How are housebuilders responding to the coronavirus?

Most of the UK housebuilding stocks, which focus on new-build homes, have already announced that they are shutting their sales offices and building sites to follow government guidelines and because their supply chain has been disrupted and left them with a lack of materials.

What FTSE 100 stocks have the cash to weather the coronavirus storm?

All in all, UK housebuilders are among the more financially fit stocks with the capability to weather the temporary shutdown of the industry. However, it is the larger housebuilders that have hoards of cash to fall back on while some smaller outfits may have a harder time. Despite the industry holding billions in cash, almost all of them have taken what they describe as ‘prudent’ action by suspending dividends and clawing back planned returns from shareholders.

Berkeley Group

Berkeley Group is the richest housebuilding stock and the only one that has promised to continue paying dividends. It has over £1 billion in net cash and another £750 million of untapped debt facilities it can use if it needs it. It returned £125 million in dividends on 31 March and has said it will continue to return funds to investors before the end of September through dividends and share buybacks.

‘Our priority is to maintain the dividend and deliver a pre-tax return on equity of 15% over the next six years, which the board believes is the appropriate risk-adjusted target return across the cycle for Berkeley,’ the housebuilder said on 27 March.

‘The board also confirms its intention to make the next £140.1 million shareholder return by 30 September 2020 through a combination of share buybacks and dividend (£6.0 million of which has already been met through share buybacks) and that it will reassess the position with regard to the postponed enhanced capital return when the company announces its full-year (FY) results for the year ended 30 April 2020,’ Berkeley added.

Like all of its peers, Berkeley Group has suspended its financial guidance, but it is the only one that has taken action to protect shareholder returns.

Barratt Developments

Barratt Developments has £380 million in cash and £700 million of unused debt facilities but it has still decided to claw back £100 million back from shareholders by cancelling its latest dividend payment that was due to be paid in early May, citing the ‘uncertainties’ caused by the coronavirus.

‘The board recognises the importance of dividends as a part of overall shareholder returns and will consider dividends at the time of announcing the FY results in September taking into account the position on COVID-19,’ Barratt said on 25 March.

It also warned that, while its forward sales book remains strong with 13,836 homes on order worth almost £3.3 billion, there has been an ‘increase in cancellations’ as the coronavirus gathers pace.

Persimmon

Persimmon has warned it is ‘preparing for a significant delay in the timing of legal completions, a rise in cancellation rates and a material slowdown in new sales’.

The company’s cash position stands at £610 million at it has debt facilities to utilise if it needs to. Still, it has cancelled a 125 pence per share special dividend and its final 110p dividend for the last financial year and said it will ‘reassess it later in the calendar year when the effects of the virus will be clearer’.

‘While the company's regular annual payment of at least 110p per share has been stress tested for payment through the housebuilding industry cycle, the COVID-19 virus presents an exceptional set of circumstances,’ Persimmon said on 25 March. ‘The board remains committed to evaluating an ordinary course payment of 110p per share to shareholders this year, should economic and business disruption abate in the next several months.’

Taylor Wimpey

Taylor Wimpey said it had net cash of £165 million and, when its unused £550 million credit facility is taken into account, available cash of £807 million as of 23 March. Taylor Wimpey said it has taken ‘proactive measures’ to protect its balance sheet as it prepares for ‘periods of inactivity’ and poor cash generation.

‘We are likely to face weeks or months of uncertainty, including periods of inactivity which will limit our ability to complete on homes and therefore generate cash,’ it said. ‘Until the extent and duration of the disruption is better understood, the board believes conserving cash is in the best interests of the long-term sustainability of the business.’

It said its ordinary dividend, which costs at least £250 million per year, would usually be sustainable through a normal downturn but said the current pandemic ‘goes beyond normal and even severe cyclical swings and represents an exceptional case’. As a result, it has cancelled – not postponed – both the final and special dividends that were due to be paid in May and July, respectively. By doing so, it has saved itself £125 million in ordinary payouts and £360 million in specials.

‘We remain an inherently cash generative business and will revisit the payment of dividends and the resumption of guidance when there is more certainty on the outlook,’ it said.

On 1 April, Taylor Wimpey updated shareholders by stating the 2% planned increase in salary for board members had been cancelled and that management had agreed to voluntarily cut their salaries and pension by 30% for the duration of the crisis.

Crest Nicholson

FTSE 250 housebuilder Crest Nicholson ended 2019 with £37.2 million of net cash, giving it a much smaller cash pile to fall back on. It has therefore fully drawndown its £250 million credit facility, which it said left it with available cash of £185 million on 19 March.

It is therefore unsurprising that Crest Nicholson has outright cancelled its recently declared final dividend for 2019, rather than postpone the payouts like its larger and richer competitors.

‘In the ordinary course of business, the company has a strong balance sheet and has made good progress in reducing levels of capital employed in the current financial year,’ it said.

Countryside Properties

Countryside Properties said it has £110 million of available cash and a ‘good liquidity position’ with a £300 million facility in place. Still, it said it has taken the ‘prudent decision’ to start looking at opening additional financing to provide a better safety net should it need it.

Countryside did not mention its dividend payment when it released its update on the impact of the coronavirus on 25 March. Its financial year runs until the end of September 2020 and its latest dividend was paid in early February, before the outbreak became a pandemic. It is due to release interim results on 14 May, suggesting it is biding its time and not making any tough decisions until it must. Payouts should be considered at risk if the situation has not improved by then, but it may avoid having to suspend or cancelling it if lockdown measures are eased quickly.

Bellway

Bellway released its interim results covering the six months to the end of January 2020 on 25 March that showed top-line growth, but this was overshadowed by the outbreak.

‘The unprecedented challenge and uncertainty presented by COVID-19 will result in a period of substantial disruption,’ Bellway said. ‘There is also a threat to liquidity across the wider economy and the board is therefore taking immediate action to preserve the strength and resilience of the balance sheet.’

As a result, it ‘postponed’ its interim payout ‘until later in the calendar year, when there is more certainty’ about the outlook. Although it is trying to preserve liquidity over the short term, it seems it is committed to maintaining payouts in 2020, just at a later date.

Redrow

Redrow is in the weakest position as the housing market temporarily shuts down because it has a weaker balance sheet than its peers.

On 24 March, the company said it had £250 million in credit facilities and net debt of £116 million, stating it expected this to ‘reduce substantially over the coming month as high volumes of homes legally complete’. However, just three days later it issued another statement that said it was talking to a syndicate of six banks about securing further headroom and doubling the accordion feature on existing facilities from £50 million to £100 million.

‘These are unprecedented times. The actions we have announced today will give us the flexibility to manage the business through this turbulent period to ensure we are ready to resume production when it is safe to do so,’ said executive chairman John Tutte.

Like Crest Nicholson, the housebuilder has had little choice but to cancel the interim dividend that was due to be paid on 9 April, clawing back £37 million from investors. ‘Once we have more certainty over the impact on the industry and our business we will make an announcement over future dividend distributions together with an update on trading,’ Redrow said on 24 March.

How has the coronavirus hit the share prices of housebuilders?

The housebuilders have all lost considerable value over the month to the end of March, but investors have greater confidence in some over others. For example, Berkeley Group – the only one to have guaranteed payouts will continue through the crisis – only lost 23.7% in value during March, considerably less than its peers. Similarly, stocks like Crest Nicholson and Redrow, which don’t boast the strongest balance sheets in the industry and have to had to cancel dividends outright, have suffered the deepest declines.

All of the housebuilders have underperformed the wider market, with the FTSE 100 having lost nearly 15% during the month while the FTSE 250 has dropped by almost 22%.

Share price movement in March 2020
Berkeley Group -23.7%
Barratt Developments -41.2%
Persimmon -32.5%
Taylor Wimpey -42.1%
Crest Nicholson -60.4%
Countryside Properties -39%
Bellway -41.3%
Redrow -51%

What could happen to the UK property market when lockdown ends?

The coronavirus has effectively frozen the UK housing market and the longer it lasts, the more it will test the strength of the sector’s balance sheets as it remains unable to build or sell new homes and generate cash.

The largest housebuilders are showing their ability to flex their financial strength, with those in the FTSE 100 sitting on much greater hoards of cash than their smaller peers, which will have to rely more on debt and could have a much tougher time weathering the storm.

Importantly, the market is in a temporary shutdown and is not suffering from any fundamental problems or a crash. Housebuilders will be able to pick up where they left off as soon as the lockdown measures are eased so long as supply chains and labour return to normal levels, and this means it is a case of surviving what will be a turbulent year. Those that do will bounce back strongly, even if they have had to stock up on debt in the meantime.

But, be wary. A full recovery of the UK housing market will take much longer to feed through than other industries. This is because a transaction can take three to six months to complete and it will take time for both supply and demand to return to pre-pandemic levels. Savills suggests there will be a ‘build-up of latent demand’ that will surface when the crisis ends but implies transaction levels won’t fully recover until 2021.

Find out how you can short the housing market

‘The experience of working from home for an extended period of time will drive many households to move. If transactions were to recover to between 60% and 80% of normal levels by January 2021 and return to normal levels by May 2021, we could see between 1,122,000 and 1,166,000 sales in 2021,' the estate agent said. If that forecast was to come to fruition, then transactions would be between 9% to 14% higher in 2021 than what it expects this year in light of the pandemic.

However, the biggest unknown and threat to the housing market’s recovery will be the state of the economy once the coronavirus crisis is over. The current state of play makes it virtually impossible to predict the shape of employment, incomes and the overall economy later this year or in 2021, and all of these will weigh heavily on both supply and demand in the housing market in ways that we don’t yet understand. Plus, if things start to get back to normal in the latter half of 2020 as currently expected, then the impending Brexit deadline at the end of this year will return to centre stage for the economy and the housing market.

Still, it is unlikely that housebuilders will wait for a full recovery before they resume paying dividends and buying back shares, and share prices will undoubtedly benefit as these returns begin to be restored. This should see housebuilding stocks bounce back quicker than the market itself.

How to measure and trade coronavirus volatility

Housebuilders have seen their share prices plunge since the pandemic began, which could make the most financially-fit, such as Berkeley Group, attractive to investors looking to buy the dip. However, the inactivity and inability to generate cash will mean their share prices will remain volatile over the short-term, which should provide plenty of opportunities for traders too.


This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

React to global volatility

Market volatility continues as coronavirus dominates the global agenda. Trade with us to take advantage of:

  • Tight spreads – from just 1 point on major indices, and 2.8 on US crude
  • Guaranteed stops – they’re free to use, and you’ll only pay a small fee if they’re triggered
  • Round-the-clock assistance – our highly-skilled team are on hand to support you

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Friday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.