SHARES in Britain’s big housebuilders took a hammering yesterday amid the prospect of higher interest rates and intervention to cool the heated property market.
Chancellor George Osborne said on Thursday night that he would grant the Bank of England stronger powers to curb mortgage lending, while the central bank’s governor, Mark Carney, hinted that borrowing costs could rise by the end of the year.
The speeches at the Mansion House dinner in London sent a shockwave through the stock market yesterday. Housebuilding heavyweights Barratt Developments, Bellway, Bovis, Persimmon and Taylor Wimpey shed between 4.9 per cent and 7 per cent.
On the currency markets, meanwhile, sterling rose close to a five-year high following Carney’s remarks on interest rates.
Berenberg economist Robert Wood said: “The authorities are gearing up to rein in the housing market. Action is likely to be gradual and gentle, but make no mistake, it is on the way.”
Fears over a housing bubble are centred largely on London and the south-east of England and industry leaders in Scotland urged the need for caution.
Homes for Scotland chief executive Philip Hogg said: “There is a wide variation in conditions across the UK, with no signs of an over-heating market or housing bubble in Scotland. Policy-makers therefore need to carefully consider the impact of any changes.
“In Scotland, lack of effective land remains the single biggest blockage to building more of the new homes we desperately need.”
The slump in share prices came as upwardly revised figures for the resurgent construction sector suggested that Britain’s economy is likely to have grown more rapidly than previously thought in the opening months of 2014.
The Office for National Statistics (ONS) revealed that construction output had grown by 1.5 per cent in the first three months of 2014, up from a previous estimate of just 0.6 per cent.
It said that all else being equal, this could lift gross domestic product (GDP) growth for Q1 from its initial estimate of 0.8 per cent to 0.9 per cent, the best quarterly rate of growth for the UK economy since the second quarter of 2010, when it expanded by 1 per cent.
The construction sector has been a key driver of the UK’s surprisingly robust economic recovery, along with the housing market.
But while the government is keen to support more building, it is concerned that house prices and household debt may get out of control.
Chris Williamson, chief economist at Markit, said that, taken together with recent healthy manufacturing figures, the upgraded construction data suggested the economy was on course for another strong spell of growth in the second quarter.
The ONS figures also showed that the construction sector grew by 1.2 per cent in April compared with the previous month.
Williamson stressed that it was “not just a housing market upturn” – while private sector housing activity grew 2.5 per cent in April there was also a 3.8 per cent upturn in private sector industrial work. He said signs of a “booming” construction sector added to the remarks from Carney on interest rates to suggest that a hike was more likely by the end of the year.
Adam Marshall, executive director of policy and external affairs at the British Chambers of Commerce, which represent thousands of businesses, said: “While Mark Carney is right to say that the ‘timing of Britain’s first interest rate rise is less important than the path thereafter’, we would urge the monetary policy committee not to jump the gun.
“Earlier-than-expected rate rises could mean that current levels of growth are ‘as good as it gets’. The case for acting more swiftly has not yet been made.
“If the housing market is the principal concern, there are other tools at the Bank of England’s disposal to cool the market.”
CBI director-general John Cridland added: “With the economic recovery firming up nicely, any change in monetary policy should ensure this isn’t blown off course.”
A possible rate hike by the Bank of England by the end of 2014 would make it the first major central bank to normalise monetary policy since the global financial crisis broke in 2008.