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Article information Authors: Laura Jones and Chris Newlands Role: Business reporter 5 July 2024, 07:59 BST
Updated 3 hours ago
Shares in British housebuilders soared on Friday after Labour's landslide victory in the general election returned the party to power for the first time since 2010.
Vistry, Persimmon, Taylor Wimpey, Barratt and Berkeley all closed up 2-3% following Labour's new housebuilding plans.
During the election campaign, Labour focused primarily on tackling housing supply issues, promising to build 1.5 million homes in the next Parliament.
The party has promised to reform the planning system, but some have warned that this will not be easy.
Do your words and actions match up?
Speaking to the BBC, new Chancellor of the Exchequer Rachel Reeves said town planning reform was “front and centre” of Labour's plans for economic growth.
To build the 1.5 million homes and energy infrastructure Labour has promised, “we need to change how our planning system works, speed it up and stop the bureaucracy that holds back investment with red tape”, she said.
Labor also said it would allow development in lower quality areas within the Green Belt, known as the “grey belt”.
Analysts RBC Capital Markets said in a note they would be watching to see whether the new administration's “actions match its words.”
“In the very short term, we expect this discussion alone will be supportive of the stock price,” RBC said.
But Sarah Coles, head of personal finance at Hargreaves Lansdown, said any overhaul of the planning system was likely to be a “gradual and difficult process”.
The rise in shares came after Halifax, Britain's largest mortgage lender, said mortgage costs remained the biggest challenge for home buyers and those coming to the end of fixed-term contracts.
But with rising incomes and subdued house price growth, the pressure from rising interest rates is likely to ease over time, said Amanda Bryden, head of mortgage lending at Halifax.
According to Halifax, the average house price in the UK last month was £288,455, down slightly from £288,931 in May.
But Mr Bryden said markets were in a “delicate balance” and would be sensitive to how quickly the Bank of England's base rate was changed.
A 'cooled' market
Britain's central bank began raising its key interest rate in the second half of 2021 to tackle soaring inflation as the easing of pandemic-related restrictions led to tight supply chains, pushing up prices and sending food and energy prices soaring in the wake of Russia's invasion of Ukraine.
The bank's base interest rate is currently 5.25%, the highest in 16 years.
However, at its last rate-setting meeting, the bank appeared to signal it may cut interest rates at its next meeting on August 1.
Despite this, many homeowners who are reaching the end of their fixed-rate agreements are facing much higher mortgage rates than they may have been accustomed to.
The current average interest rate on a two-year fixed contract is 5.93%, but this is lower than last year's peak of 6.86%, and major lenders have been cutting rates in recent days.
Halifax said in its latest figures that house prices in Northern Ireland were up 4% year-on-year, the fastest growth in the region.
London property prices remain the most expensive, with an average price of £536,306.
Prof John Curtice told the BBC that the result highlighted the Conservatives' poor performance in areas where more than a third of households have a mortgage.
He suggested that this could be due to the turmoil seen in the market following the announcement of the mini-budget in September 2022.