U.K. Housebuilder Sees Market Rally Fading When Stimulus Ends

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The rebound in the U.K. housing market is set to slow next year when support measures including a sales tax break expire, according to builder Redrow Plc.

The tax relief, part of a government plan to kick-start the economy, has succeeded in stimulating the market, and the challenge now is to ensure that this recovery can be sustained, according to Redrow Executive Chairman John Tutte. House prices rose in August by the most in 16 years, driven by the tax break that expires in March and demand that built up during lockdown, according to Nationwide Building Society.

“Beyond March, we could go through a period where trading is tougher,” Tutte said by phone on Wednesday after Redrow announced its results for the year through June. “History tells us when you suddenly cut off what is quite an attractive incentive, the market can adjust pretty quickly and fall.”

U.K. residential properties have so far defied the economic fallout from Covid-19 after the lockdown effectively froze the market for about six weeks through mid-May. Yet concern is growing that the market could slump as government economic stimulus ends, with the Centre for Economics and Business Research forecasting that average house prices will fall by nearly 14% next year from 2020 levels.

Redrow called on the government to avert a “hiatus in the market” by making long-term changes to the sales tax on property purchases “to free up more cash for deposits at a time when the high loan-to-value mortgage market is constrained.”

The homebuilder saw pre-tax profit plunge by 66% in the financial year through June on coronavirus-related costs and the scaling back of its London business. Redrow said trading has been encouraging in recent months.

©2020 Bloomberg L.P.

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