Barratt puts feelers out for loans sale

Published 08th Aug 2011

Housebuilder Barratt Developments (BDEV.L) said it is in early talks with investors to sell part of its shared equity mortgage book, a set of loans which might whet the appetites of private equity or banks.

Britain's largest housebuilder by volume confirmed press speculation on Monday that it is mulling a partial sale of its portfolio of shared equity loans, worth 170 million pounds in total according to a source close to the deal.

Shared equity loan schemes enable a potential home buyer to secure a new home with a very low deposit.

The homebuilder, either by itself or teaming up with the government, acquires an equity stake that is normally around 25 percent of the purchase price, sometimes rising to 50 percent. The remainder is financed by a deposit and mortgage, which must be repaid by the occupying home buyer in tandem with rent payments to the holder of the equity stake.

Analysts said the sale might attract interest from banks and private equity funds -- looking to amass other shared equity portfolios -- and banks.

"(Such a deal for banks) would act as a partial hedge against a mortgage book any way. So they would be getting a relatively regular income back from it," said Kevin Cammack at Cenkos Securities.

"Very often these things (shared mortgages) don't see out their full term. I know for a fact that one or two of the banks have looked at that sort of thing," he added.

Housebuilders have pumped almost 1 billion pounds into the housing market in the form of shared equity loans over the last three years, according to the Home Builders Federation. This has resulted in close to 30,000 sales.

A sale of shared-equity loans would free up capital, enabling housebuilders to invest in new land and focus on the core activity of building homes.

"I think all the housebuilders will probably consider trading on their shared equity book, but the caveat is, is what price will they get," said Chris Millington at Numis Securities.

CHANGE FORTUNES?

Any move to sell loans will only involve schemes offered solely by the housebuilder and not products offered in conjunction with the government to help first-time buyers onto the property ladder such as HomeBuy direct and more recently First Buy.

"Owned shared equity look more attractive to third party investors, than the products that have been tied up with government," said Millington.

He estimates that around 40 percent of Barratt's overall portfolio is made up of its own shared equity products, which could have an approximate sale value of between 50-60 million pounds, taking into account write downs on the value of the portfolio.

"I do think it will be an incremental positive, but I don't really think it will change the fortunes of (Barratt's) business," he added.

Shared equity schemes accounted for 22 percent of Barratt's sales in the year to end June, falling from 27 percent a year earlier, according to the group's trading statement issued in July.

Shares in Barratt, which will announce its full-year results on September 14, were up 0.9 percent at 10:18 a.m.

Source: ' Reuters '

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