The housing market rapidly gained traction in 2013 with confidence returning to buyers, mortgage lenders and housebuilders.
Government policy designed to encourage more people to take on mortgages, such as the Help To Buy scheme and Funding for Lending, provided a huge boost to the housing market.
Some analysts and managers have voiced concerns the upturn may have run its course and that the market is ready to burst.
However, both of the JPM managers have overweight positions in housebuilding stocks and those heavily correlated to the UK housing market in their respective funds, and say that the surge in the stocks related to this development has further to run.
“While it is not without risk, the UK housebuilding sector continues to be an area where we see opportunity,” said Ingram.
“There was significant volatility in the share prices of housebuilders following the withdrawal of the Funding for Lending scheme.”
“The number of housing transactions forecast for 2014 are well below peak years and we’re still happy with the housebuilders and are maintaining our overweight, including names such as Barratt Developments and Crest Nicholson.”
“We also continue to own Foxtons and Countrywide, which are beneficiaries of the housing upturn, as well as Lloyds.”
Ingram co-manages the £147.5m JPM UK Dynamic fund alongside John Baker and Blake Crawford, while Brittain co-manages the £170m JP Morgan Mid Cap trust alongside William Meadon.
Brittain’s JP Morgan Mid Cap trust has had a stellar three years. According to FE Analytics, it has returned 108.38 per cent over this time compared with 61.7 per cent from the FTSE 250 index and 45.03 per cent from its IT UK All Companies sector.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
Of its top-10 holdings, four are directly affected by the housing market. These are Barratt Developments, Taylor Wimpey, Howden Joinery and Rightmove.
All of the stocks have significantly outperformed the FTSE All Share over the past year, which made 8.01 per cent.
Barratt Developments returned a massive 77.61 per cent and Howden Joinery made 73.28 per cent.
Performance of stocks vs index over 1yr
Source: FE Analytics
Ingram’s JPM UK Dynamic fund has also had a strong run over three years.
According to FE Analytics, it has made 49.01 per cent over this time compared with a sector average of 38.34 per cent and a return from the FTSE All Share of 31.23 per cent.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
Ingram believes the housebuilding market will remain buoyant in 2014.
“Housing affordability is still at seven- to eight-year lows and as a proportion of monthly income, capital and interest costs are only around a relatively reasonable 18 per cent.”
“Additionally, the number of housing transactions forecast for 2014 are well below peak years. On the balance of all of that, we’re still happy with the housebuilders and are maintaining our overweight.”
However he is also playing the theme indirectly with positions in Countrywide and Lloyds.
“Countrywide PLC is the UK’s largest estate agency and lettings network. The share price has risen strongly since it floated on the stock market, benefiting from the high volume of housing transactions.”
“The UK property outlook should also benefit Lloyds in several ways. For instance, its revenue line should grow with higher mortgage volumes, while bad debts should decline as house prices recover and as the wider economic context improves.”
“Those worried about a housing bubble that will inevitably burst have pointed to the market’s over-reliance on government schemes for its growth.”
“They see the withdrawal of such schemes as potential triggers for a market crash. In November 2013, the Government effectively withdrew its Funding for Lending scheme.”
“We did not make material changes to our overweight of 4 per cent in UK housebuilders when the Bank of England changed the Funding for Lending scheme.”
“It did not cause us to reduce our exposure to the sector or other stocks sensitive to the property market such as estate agents and Lloyds.”
“This is because we believe this move does not materially affect demand for housing and mortgages.”
“That announcement could almost have been seen as a positive because it suggested the Bank of England views the lending recovery as self-sustaining and that is a positive indicator.”
The latest data from the Council of Mortgage Lenders shows total mortgage lending, which includes first-time buyer, home mover, remortgaging and buy-to-let lending, was up 30 per cent in January 2014 compared with the same month in 2013.
The number of first-time buyers and home movers increased substantially in comparison with January 2013.
Remortgage lending in January was up 10 per cent in volume compared with December and also up 16 per cent compared with January 2013.
Buy-to-let lending for house purchases increased 11 per cent in January in volume compared with December 2013.
Buy-to-let remortgage lending also increased 6 per cent compared with December.
The Bank of England reported earlier this month that UK gross mortgage lending was £16.1bn in January, which due to an expected seasonal dip, was down slightly by 4 per cent compared with December 2013, but up 39 per cent compared with January 2013.
Paul Smee, director general of the Council of Mortgage Lenders, says the data indicates the housing market is on an upward trend.
“January is always a subdued month in the mortgage market but the underlying trend and strong year-on-year growth across all borrower groups indicates a strong start to 2014 continuing the sort of lending levels seen throughout 2013,” he said.
“Lending to first-time buyers and home movers has continued its upward trend and this, coupled with the growth in remortgage and buy-to-let activity, would suggest that all parts of the market are open for business.”
