Property & Construction Daily

The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

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October 30, 2023

SFE, LOK | Economics – Low mortgage approval numbers continue into September | News – Government to phase out leaseholds

Company news

Safestyle UK (SFE, shares suspended)

UK manufacturer, recycler and distributor of window, door and roofline PVC products. Notice of Intention to Appoint Administrators (from Friday, after market close). “Following its announcement of 26 October, the interested parties that were, at that time, involved in the Proposed Sale process as defined in that announcement, have withdrawn their respective interests. Therefore, the Board of the main trading subsidiary of the Group, H.P.A.S. Limited and other intermediate holding companies in the Group, namely Style Group Holdings Limited and Style Group UK Limited, has concluded that they are no longer able to continue trading as a going concern. Consequently, the Board has filed notice of intention to appoint administrators to HPAS, Style Group Holdings Limited and Style Group UK Limited in Court today. Unless financial circumstances change, and in accordance with statutory requirements, the board of these three companies intends to appoint administrators within 10 business days”.

Lok’n’Store Group (LOK, 649p, £213m)

UK self-storage group. FY (Jul) results. Rev +0.9%, £27.1m; adj EBITDA -7.9%, £15.1m; stat PBT -58%, £6.7m; stat EPS -61%, 15.9p; div +10%, 19.0p; adj NAV, 986p (FY 22, 972p); net debt, £12.3m (£20.3m); LTV, 3.7% (6.6%).

Trading: Same store self-storage rev +12.1%; same store EBITDA +4.0%, £14.5m; pricing +6.8%, £27.34 p sq ft.

Outlook: “Trading since the year-end continues to be in line with expectations. We have opened two new Landmark stores and are on site at three more which will open within the next 12 months which can be completed using cash. These new stores will add further momentum to sales, earnings and net asset growth”.

Economic data

Mortgage approvals. The number of approvals for house purchase fell by 4.7% M/M (seasonally-adjusted) to 43,328 in September, the lowest level since January and 31% below the 10-year average, according to the latest Money and Credit statistics from the Bank of England. However, the latest data shows a lower monthly fall than the 9.0% and 8.5% in July and August respectively. September fell by 35% Y/Y (non seasonally-adjusted), following -37% comparing this August with the same month in 2022, immediately prior to the 23 September mini-Budget. The effective interest rate on newly drawn mortgages recorded a 19 bp increase to 5.01%. Next release, 29 November.

Viewpoint: While depressed, the reducing rate of Y/Y decline suggests the ‘Truss effect’ is beginning to dissipate, while the lower M/M reduction may signal a bottoming out of mortgage activity, in what appears to have been a more lacklustre than usual autumn housing market.

Mortgage approvals for house purchase SA

In other news …

Leasehold reform. All new houses in England and Wales will have to be sold as freehold properties as part of sweeping government reforms to phase out the leasehold system, Sunday Times (paywall). The reforms are set out in a Leasehold Bill being drawn up by Michael Gove, the levelling-up secretary, for the King’s Speech, which will also overhaul the process of extending leases and give leaseholders more power to manage their building and service charges. Whitehall sources said it would make it easier and cheaper for millions of people to buy their homes outright. The Government has already legislated to cap ground rents on new properties and in January Gove said he intended to abolish the leasehold system, describing it as an unfair and “outdated feudal system that needs to go”. Under the proposed reforms, the government will legislate to ensure that all new houses built must be sold as freehold, although new flats can still be leasehold. Ministers also plan to cap all existing ground rents to a “peppercorn” rate and will run a consultation process of the issue within weeks, alongside the bill. While many people are freeholders who own their properties outright, about ten million are leaseholders in England and Wales. They own the right to occupy their home but the building or land is owned by the freeholder or landlord. This should have limited impact on housebuilders as, according to the BBC, the proportion of new-build houses sold as leaseholds has fallen from a 15% high in 2016 to just 1% in December 2022.

Prices are as at the previous day’s close. Where quoted, net debt is pre-IFRS16 (excluding leases) unless otherwise stated.

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