Wednesday, December 01, 2004

Northern builds a strong case for housing sector



LITTLE succour for squeezed first-time buyers in the latest trading update from one of the smaller but more efficient mortgage lenders on the block, Northern Rock.

Twenty-somethings, says Northern, are being caught in a vice that is helping to prevent singletons moving out of the family home and young couples from getting that first step on the property ladder.

Courtesy of hikes in university fees and general lifestyle preferences, 18-25 year olds, says the bank, are generally in greater debt than previous generations. That militates against buying a place of their own.

On top of that, the buy-to-let market is booming among the thirty- to sixty-somethings, and it is exactly those first-time buyer priced homes that the opportunistic oldies are snapping up. As such, Northern says that the current, more subdued housing market cannot look to young first-time buyers to take up the slack, certainly not in the short term, to get the show back on the road. It believes first-time buyers will be slower to return to the market than in previous cycles.

This is not to say Northern is one of the doomsayers about the housing market. Group chief executive Adam Applegarth admits there has been a clear slowdown in 2004, as a string of base rate rises by the Bank of England has reined in consumer appetite for home loans and home moving. But, over the medium term, he says there is plenty to suggest the mortgage market will remain in good nick.

He is among a host of banking and housebuilding executives who, when justifying their sanguine outlook, cite base rates at historically low levels (4.75 per cent, a level the negative equity-drenched early-1990s would have bitten your arm off for).

Applegarth, like his peers, points to low unemployment, low inflation and stable British economic growth - all positives for the housing market.

Limited availability of other forms of accommodation will also act as a spur to the mortgage market in the medium term, he reckons.

From Applegarth at Northern to the likes of James Crosby at Halifax-owning HBOS and David Pretty at Barratt the housebuilders, there is a consensus among people in the mortgage and homes industry that we are off the top of the cycle but there is plenty left in the tank due to favourable economic conditions.

Many, like Pretty, welcomed the monetary tightening this year because they felt it took some heat out of the mortgage market and made growth look more sustainable rather than a bubble that could burst and harm everyone.

Northern is a canny Tynesider and not given to hyperbole. It also has a decent enough market share to make its views on the current housing climate worth gauging. And its message, medium-term, is undeniably positive. It is just that that medium term may be slightly longer for the unfortunate first-time buyers.

Compass points to positives

CATERING giant Compass has not had its problems to seek over the past year, from slowing margins in school catering to problems with individual distributors.

Its profits warning in September took some of the heat out of yesterday’s annual fall in profits, but there was market disappointment when the revised numbers still came in towards the bottom of expectations.

The positive for the group is its sheer size and breadth of operations, from schools and hospitals to a host of international blue-chip companies. Compass can always seek to make up in one area what it loses temporarily in another.

Two things give some idea of the company’s resilience in tough times. Quite apart from a steady rota of new business, its retention rate of business (an un-headline attracting but vital part of any company) is an impressive 95 per cent. Once Compass is in on the ground with a company, hospital or school it tends to stay there (although lower margins in cash-strapped schools mean it is sometimes now walking of its own volition, partly the reason behind the September profit warning).

And then there is the sheer scale of its client roster: Bank of America, US advertising giant Grey Global, and Microsoft across the Atlantic; Britain’s National Railway Museum, the London Stock Exchange, the Royal & Ancient Golf Club of St Andrews and the Royal Mail here.

Compass said 2004 was challenging and there might not be a v-shaped recovery next year, but it remains a big beast in the catering jungle and some of the negativity surrounding the profit warning and yesterday’s figures looks over-cooked.

In this column yesterday we referred to the support services company Amey as "having since gone out of business". We are happy to point out Amey is still trading.


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