Landlords Rent Guarantee Insurance | Private Equity Gets Boost From U.K. Government
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A U.K. government scheme to revive lending to home buyers and small businesses is producing some unexpected beneficiaries: private equity firms.
Real estate agency Countrywide, owned by Oaktree Capital, Apollo Global Management LLC and Alchemy Partners LLP, Wednesday announced a plan to return to the public markets, buoyed in part by looser mortgage lending from banks. The float plan comes a week after house builder Crest Nicholson listed its shares, letting majority holders Varde Investment Partners LP and Deutsche Bank AG cash out part of their stakes.Landlords Rent Guarantee Insurance
Buying shares in Countrywide or Crest Nicholson is a bet on a recovery in the U.K.’s stagnant housing market, where monthly mortgage approvals are running at about half their rate in the years before the 2008-09 financial crisis. A full-blown recovery appears unlikely in a no-growth economy, but investors have been cheered by a pick-up in mortgage lending to first-time buyers, a vital force in a healthy market.
The higher number of first-time buyers is in turn thanks in large part to the Funding for Lending program started last year by the government and Bank of England. The scheme gives banks cheap money to lend out to home buyers and small businesses, and has had the effect of bringing down mortgage rates and encouraging banks to raise the maximum percentage they will lend against a house’s value.
For Countrywide and Crest Nicholson, the program may have been the dash of fuel needed to ignite their returns to the public markets. Both companies were taken private in 2007, just before house prices started to fall. The U.K. financial system nearly collapsed the following year, leaving the country’s banks battered and unwilling to take risks.Landlords Rent Guarantee Insurance
Subsequent restructurings at Countrywide and Crest Nicholson to reduce their oversized, pre-crisis debt loads meant changes to the companies’ ownership, putting both under the control of distressed-debt funds. Varde and Deutsche Bank sold down some shares in Crest Nicholson last week, while Countrywide’s existing shareholders aren’t heading for the exit yet but rather are using the float to raise new funds and refinance expensive debt.
Landlords Rent Guarantee Insurance
Indeed, prospective Countrywide shareholders should take comfort that the current owners want to hold their investment for longer. A fixed cost base means there could be huge gains for the company if and when the housing market springs back to life. Crest Nicholson similarly offers investors upside, in the form of a large land bank with a good record of getting planning permission.
Countrywide Chief Executive Grenville Turner said the dormant housing market of the past few years has stored up a massive backlog of transactions that could be a boon for the company. Last year, around 700,000 houses changed hands in the U.K., down from an annual average of around 1.3 million houses between 1997 and 2007.
Stable unemployment figures are also underpinning expectations that the housing market has made it through the worst, after a 20% house-price fall since 2007. The jobless total fell by 14,000 between October and December, the Office for National Statistics said Wednesday, to 2.5 million. The number of people in work is up by 580,000 from a year ago, at 29.7 million.
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