Shares in housebuilders soar following labour’s electoral triumph

The share prices of major UK housebuilders surged on Friday after Labour’s resounding victory in the general election, marking the party’s return to power for the first time since 2010.

Companies like Vistry, Persimmon, Taylor Wimpey, Barratt, and Berkeley saw their shares increase by 2-3% in response to Labour’s ambitious plans to address the housing shortage.

Labour’s campaign focused heavily on tackling the housing supply crisis, pledging to build 1.5 million homes over the next parliamentary term. The party has also committed to reforming the planning system, although some experts caution that implementing these changes will be challenging.

Planning reform at the forefront

In a BBC interview, new Chancellor Rachel Reeves highlighted that planning reform is “front and centre” of Labour’s strategy to stimulate economic growth. “To build the 1.5 million homes and the energy infrastructure we’ve committed to, we need to change how our planning system works – speed it up, stop the bureaucracies that are tying up investments in red tape,” Reeves said.

Labour has proposed allowing development in lower-quality green belt areas, referred to as the “grey belt.” Analysts at RBC Capital Markets noted they will monitor if the new government can deliver on its promises, suggesting that in the short term, Labour’s rhetoric alone may boost share prices.

However, Sarah Coles, head of personal finance at Hargreaves Lansdown, warned that overhauling the planning system could be a “gradual and tortuous process.”

Mortgage challenges persist

The rise in housebuilder shares coincides with ongoing challenges in the mortgage market. Halifax, the UK’s largest mortgage lender, stated that high mortgage costs remain the biggest hurdle for homebuyers and those nearing the end of their fixed-term deals. Amanda Bryden, head of mortgages at Halifax, indicated that the pressure from higher interest rates should ease gradually as incomes rise and house price growth remains subdued.

According to Halifax’s latest figures, the average UK house price in June was £288,455, slightly down from £288,931 in May. Prices were up 1.6% compared to the previous year, aligning with data from the Nationwide building society. Bryden noted that the market is “delicately balanced” and sensitive to potential changes in the Bank of England’s base rate.

Tepid housing market outlook

The Bank of England has raised its key interest rate to 5.25%, the highest in 16 years, to combat soaring inflation. However, the Bank has hinted at a possible rate cut in its next meeting on 1 August. Despite this, many homeowners with expiring fixed-rate deals are now facing significantly higher mortgage rates.

The current average rate for a two-year fixed deal stands at 5.93%, down from last year’s peak of 6.86%, with major lenders recently reducing rates. Halifax reported that Northern Ireland experienced the fastest regional house price growth, up 4% from the previous year, while London remains the most expensive, with average prices at £536,306.

Political analyst Sir John Curtice suggested that the general election results reflect the Conservative Party’s poor performance in areas where over a third of families have mortgages, potentially due to the market turmoil following the September 2022 mini-budget.

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