Taylor Wimpey shares buoyed by latest Nationwide house price survey
The latest Nationwide House Price Index revealed that 2021’s house price growth has accelerated up to 13.4% in June, which is the highest level since November 2004. What impact has this had on the Taylor Wimpey share price?
- Taylor Wimpey shares up 3.36% in the year to date
- Average UK house prices up 13.4% so far in 2021
- Taylor Wimpey order book still worth £2.8bn
- Ready to trade the Taylor Wimpey share price? Open an account today
Why have Taylor Wimpey shares rebounded today?
The Taylor Wimpey share price has risen 0.59% in early trading during 29 June following the release of the latest Nationwide House Price Index. With average UK property values up to a record £242,079, up 10.3% in Q2 2021, major UK housebuilders like Taylor Wimpey look to be benefitting most by achieving premium value for new-build developments nationwide.
According to the latest index, Nationwide revealed that property prices in June 2021 were almost 5% higher than at the end of Q1 2021 when Taylor Wimpey shares hit pandemic highs. It also suggests that typical mortgage payments are ‘not high by historic standards’ compared to take-home pay due to the ‘all-time low’ interest rates on mortgages.
Will the UK’s housebuilding sector continue to be a positive driver for Taylor Wimpey?
One aspect of the latest Nationwide House Price Index which may be a cause for concern for investors in Taylor Wimpey shares is the difficulties in raising necessary funds for first-time buyer deposits.
It revealed a 10% deposit now equates to more than ‘50% of a typical first-time buyer’s income’. It also said that any potential first-time buyer earning the average wage and saving 15% of their take-home pay ‘would now take five years to raise a 10% deposit’.
These indicators are warning signs that new-build developments focusing on first-time buyers could experience constrained demand in the medium term. This is despite underlying demand appearing ‘solid’ in the short term ‘as the economy unlocks’.
The UK government is working hard to maintain first-time buyer demand by launching a spate of new initiatives, including a new 95% mortgage guarantee scheme and Help to Buy scheme, respectively.
What do Taylor Wimpey’s fundamentals look like?
Taylor Wimpey notoriously uses minimal debt as part of its capital structure, with a debt-to-total capital ratio of just 3.17% in 2020. In its latest trading update, Taylor Wimpey’s CEO Pete Redfern said it planned to trade ‘in line with [its] full-year expectations’ and that demand for its ‘high-quality [new-build] homes remains robust’.
The housebuilder’s order book also looks healthy, up from £2.7bn in 2020 to £2.8bn this year. Taylor Wimpey also took the opportunity to acquire multiple plots throughout the Covid-19 pandemic, securing £500m in capital. During this time its senior management also partook in an equity offering, which acts as another vote of confidence.
The biggest threat to Taylor Wimpey and other leading UK housebuilders like Barratt Developments and Persimmon is a deceleration of demand. If house prices also plateau or decline, current expectations of ROI on future developments may not prove so appealing.
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