Comment: Mortgage checks all grist to Miller

A BUOYANT housebuilding results season shows the main players are unfazed by the Bank of England rules introduced earlier this year that toughened up mortgage affordability checks.

Martin Flanagan

Scotland’s biggest housebuilder, Persimmon, recently unveiling strong interim profits, welcomed the greater discipline the mortgage market review and Bank of England rules was giving to home loans, saying it would help drive the sector’s recovery, not derail it.

Miller Group, whose Edinburgh-based Miller Homes division is Britain’s biggest privately-owned housebuilder, was singing from the same virtuous hymn sheet yesterday as it posted impressive profits.

The firm, which is mulling a possible stock market flotation, said the beefed-up checks on whether mortgage applicants would be able to repay loans “should help ensure a long-term sustainable supply of mortgage finance and hence demand for new housing”.

This is refreshing commonsense from the industry. Nobody benefits longer term from an artificial housing boom. It leads to bust.

And irresponsible lending, particularly with interest rate rises in the pipeline, would fuel that dangerous possibility.

By contrast, as Miller says, putting a cap on the availability of higher loan-to-income mortgages shouldn’t choke recovery. It should support a long-term sustainable supply of home loan finance and hence boost demand for housing.

It also says something about the robustness and breadth of the housebuilding recovery that the sensible players do not need flaky lending from banks and building societies to sustain momentum.

Miller’s latest results also gave more evidence that if it does go for a public listing – or possible trade sale – it has the trading performance to back up a decent asking price.

Return on capital employed has jumped to 8.5 per cent from 3.9 per cent, it has a five-year landbank, average house prices are up 12 per cent, debt is well under control, and margins doubled in the first six months of this year as Miller Homes focuses more on larger houses in the leafier suburbs. The Help to Buy shared equity loan scheme’s extension to 2020 will also help the housing industry sustain a performance that has echoes of those halcyon days before Northern Rock’s collapse in 2007 sent housebuilder shares plunging.

Clearing the decks strategically, Miller sold its loss-making and peripheral construction business to Galliford Try last month.

Its mining joint venture with Argent Group is washing its face. But one wonders whether Miller would have even greater strategic clarity if it exited this as well to concentrate purely on residential and commercial developments.