House builders get boost from easing of mortgage loan rules

Looser credit standards will help support prices and margins

Stephen Garvey of Glenveagh

Jon Ihle

Glenveagh and Cairn Homes were among the top performers on the Irish Stock Exchange on Wednesday as investors calculated that looser mortgage rules for borrowers would mean bigger profits for builders.

Glenveagh shares surged 3.23pc, the biggest increase of the day, while Cairn ended 1.85pc up as the market digested the Central Bank’s announcement that it would allow homebuyers to take out larger loans starting next year.

The news prompted a bounce in the two housebuilder stocks, which had been battered in the year to date due to a deteriorating economic outlook. By contrast, the Iseq Overall share index fell by 1.12pc

“The wider global macro uncertainties which have seen the stocks fall since the start of the year meant that investors have been worried about price, margin and volumes for Glenveagh, Cairn Homes and the wider industry,” said Colin Sheridan, an equity analyst with Davy.

“The Central Bank moves [Wednesday] would have been seen as reducing the risk to those metrics into next year, hence the companies recouping some of those falls.”

The relaxation in restrictive mortgage measures will allow borrowers to take on 14pc more debt while slashing deposit requirements in half for mover-purchasers.

Analysts said the change should increase the number of potential buyers for new homes, which is positive for maintaining prices and margins for housebuilders, who are facing steep increases in building costs.

Dermot O’Leary, chief economist with Goodbody, said the adjustment to mortgage rules would especially favour new homes.

“This measure must be seen in the wider context of weakened demand due to higher interest rates,” he wrote in a research note.

“The [Central Bank] estimate that the changes will result in only a modest increase in the national house price index. However, given the wider government supports for first time buyers of new homes, the increase is likely to benefit the new homes sector more.”

Glenveagh chief executive Stephen Garvey welcomed the lending rule changes, saying they would “enable more home ownership”.

Glenveagh made a net profit of €9.6m in the first half of the year on gross margins of 16.5pc, a slight decline on the same period in 2021. The company has returned €87m to shareholders via buybacks.

Cairn had a profit after tax of €27.1m in the six months to June, a massive increase on the €6.4m it earned in the same period a year earlier. Its gross margins were 21.5pc

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