Shares in Britain’s beleaguered house builders soared after Andy Burnham announced a new government-backed scheme to help first-time buyers onto the property ladder.
The ‘Your First Home’ scheme, announced over the weekend, prompted one analyst to declare: ‘Christmas has come early for the UK housebuilders.’
It sparked a frenzy of demand for the biggest listed builders on the London market when trading for the week opened yesterday, with some enjoying double-digit gains.
However, there was scepticism from economists about the boost to housing demand coming at a time when interest rates are about to go up – which would have the opposite effect.
Housing slump: Higher mortgage rates and subdued demand have throttled the market
FTSE 100 firm Baratt Redrow added more than 11 per cent while in the FTSE 250 rival Persimmon gained nearly 15 per cent, Taylor Wimpey climbed 11.5 per cent and Vistry jumped more than 10 per cent.
Outside the major indices, Crest Nicholson jumped 11 per cent and MJ Gleeson by nearly 20 per cent.
Other big winners from the announcement included companies likely to benefit from a spurt of housebuilding and buying.
Ventilation and drainage provider Genuit soared 15 per cent and building materials firms Ibstock and Forterra rose 23 per cent and 18 per cent respectively.
Despite the bounce, Britain’s biggest house builders are worth only half as much as when a sharp sell-off in the sector began in 2022.
The beleaguered industry has been battered by rising costs and higher interest rates as well as strained affordability and slow planning processes.
Housebuilders have reported further deterioration in recent months.
The Middle East conflict and ongoing domestic uncertainty have hit consumer sentiment, with policy decisions dragging further on activity and buyers delaying transactions.
Last week, Vistry became the latest to deliver a gloomy update on the outlook, saying it would build fewer homes as it plunged to a record £661million half-year loss amid sluggish sales.
Investors are now betting Mr Burnham’s scheme – effectively a revamp of the earlier Help To Buy initiative to jump-start the housing market – could ride to the rescue.
Your First Home will offer first-time buyers 20 per cent equity loans on new-build properties and allow purchases with deposits from as little as 2.5 per cent.
Anthony Codling, analyst at RBC Capital Markets, said: ‘Christmas has come early for the UK housebuilders. Psychologically, Your First Home immediately improves the outlook for UK housebuilders, a light switch moment.’
Neil Jefferson, chief executive of the Home Builders Federation, said: ‘It is important now that the Government moves quickly to implement the scheme.’
But Kallum Pickering, chief economist at City broker Peel Hunt, said the timing of the stimulus measure was ‘somewhat awkward’ coming ‘just as the Bank of England may be pushed into a hike’as it tries to quell inflation pressures.
‘Surely, the better option for government would be to drive benchmark interest rates lower with tighter fiscal policy,’ Mr Pickering said.
Simon French, chief economist at broker Panmure Liberum, said the fact that the stimulus was needed was ‘an acknowledgement of failure’ of policy and that the apparent clash with rising rates ‘shows a lack of policy coordination’.
Top Bank official warns interest rates may have to rise
The Bank of England has stepped up its warnings that interest rates may have to rise in a move that would hit the housing market just as the government attempts to give it a lift.
Deputy governor Dave Ramsden became the latest central bank official to argue a hike could be required to bring inflation back under control as the Iran war pushes up the price of essentials such as food and fuel.
‘Were upside pressures on the inflation outlook to continue to build, there could be a case for increasing Bank Rate,’ he said.
His comments echo those of Governor Andrew Bailey, fellow deputies Claire Lombardelli and Sarah Breedon who have all warned rates may have to rise since the Bank left them on hold at 3.75 per cent earlier this month.
According to bets on financial markets, there is an 80 per cent chance the Bank will hike rates to 4 per cent at the next meeting of the monetary policy committee in November. A further three hikes, to 4.75 per cent, are expected next year.
That would push up the cost of mortgages for millions of borrowers – depressing demand among would-be buyers in the process.
The prospect of higher interest rates comes as Andy Burnham seeks to boost the housing market through the Your First Home initiative.
James Bentley, director of Financial Markets Online, said: ‘Anyone betting on another Help to Buy-fuelled gold rush could get badly burnt once this 2026 reboot gets off the drawing board.
‘Like its predecessor, the Your First Home scheme will offer first-time buyers support to get a mortgage. But unlike its predecessor, it would be launching into a depressed and depressing property market.
‘If, as expected, the Bank of England increases interest rates to 4pc in November, they will be eight times higher than they were during the entirety of 2013. Helping would-be buyers get a mortgage is one thing, but making them want one when interest payments are so high is another.’
He added: ‘Then there’s the small matter of the falling values of flats, and especially the sort of new-build flats likely to be built under this scheme. There are enough horror stories of first-time buyers already in negative equity to put plenty of people off. Few industries rely on confidence more than construction, but this dizzy surge in valuations is built on sand rather than concrete.’
DIY INVESTING PLATFORMS
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.