The Bank of England’s stunning move to clamp down on rising house prices sent shockwaves through the City’s listed housebuilders today, wiping more than one billion pounds off the sector as panicking investors dumped the shares.
Governor Mark Carney’s comments over “evolving risks” and a package of measures to rein in mortgage lending, including changes to its Funding for Lending scheme and potentially more stringent affordability criteria for borrowers, sent traders running for cover.
Persimmon, Britain’s largest builder by market value, immediately plunged to the bottom of the FTSE 100 index, shedding 7 per cent, or 44p, to 1201.5p.
Barratt Developments took an even bigger hammering, losing 33.2p to 314.5p, a fall of more than 9 per cent. The carnage continued as Berkeley Group dropped 106p to 2325p, or 4per cent.
Bellway, Taylor Wimpey, Redrow and Bovis Homes were among the FTSE 250’s biggest fallers, as well as estate agent Savills. Countrywide lost 1 per cent, and in the FTSE 100 builders merchant Travis Perkins was among the biggest divers, off more than 2 per cent.
Carney said: “We did not see an immediate threat coming from the housing market but we are concerned about the prospective evolution of the housing market. The concern is where this could go. We definitely see some short-term momentum.”
The Bank’s intervention comes after a succession of floats for housebuilders and estate agents since the turn of the year, driven by easing credit conditions brought about by the FLS, which has offered cheap funding conditions for banks. Carney wrote to Chancellor George Osborne reporting “significant improvements in household credit conditions” as he set out the changes “although lending to businesses overall remains muted”.
He added: “These positive changes in general economic conditions have been accompanied by a strengthening of the housing market. Although the growth in household loan volumes remains modest, activity is picking up and house price inflation appears to be gaining momentum.”
Osborne replied: “Although loan levels remain below pre-crisis levels, there are signs that the UK housing market has started to normalise. Mortgage rates are at their lowest in five years and mortgage products for lower loan-to-value mortgages are widely available.
“This reflects, in part, the success that the FLS has had on household credit conditions, and we have agreed it is an appropriate time to begin withdrawing this broad support for household credit conditions.”