- Three members of the BoE’s monetary policy committee voted in favour of a hike
- As a result, fears are growing that the housing market is heading for a downturn
- Berkeley says its profits of nearly £1bn are likely to fall due to Brexit uncertainty
Britain’s ten biggest builders have seen the value of their shares drop by a combined £3.6 billion in the last two weeks as fears grow that the housing market is heading for a downturn.
Fears of a rise in interest rates – and mortgage costs – are growing after three members of the Bank of England’s monetary policy committee voted in favour of a hike.
Bosses at housebuilding firms have cashed in over the past 12 months, with payouts to senior executives running into tens of millions of pounds.
Britain’s ten biggest builders have seen the value of their shares drop by a combined £3.6 billion in the last two weeks as fears grow that the housing market is heading for a downturn
A downturn in share prices in the sector would provoke fresh criticism of managers who have already been accused of making hay due to low interest rates and taxpayer subsidies for the industry, rather than their own skill and merit.
‘There is a fear that interest rate rises could be on the way,’ said Clyde Lewis, an analyst at broker Peel Hunt. He added that estate agents had flagged a slowdown in the market. ‘With the housebuilders it looks like we are fairly close to the top of the cycle,’ he said.
Shares in Berkeley, which specialises in luxury London homes, fell after it announced its profits of nearly £1 billion were likely to fall by almost a third due to Brexit uncertainty.
In January, Financial Mail revealed its bosses stood to make a total of £127 million in bonuses between now and 2023 despite protests from irate investors. Another recent share faller is Persimmon, which in March revealed its chief executive Jeff Fairburn pocketed a total of £47 million last year.
Vince Cable, the Liberal Democrat leader, said: ‘Housebuilding bosses seem to have secured excessive pay and bonus packages just before a downturn in the market – housebuyers will be furious.
‘Shareholders will also be left wondering why these executives should be able to award themselves such obscene packages after claiming credit for a market that has been inflated by Government schemes and taxpayers’ money.’
Some housebuilding firms have also been under fire for their part in a leasehold scandal where homebuyers have been trapped into spiralling annual bills for ground rents. Taylor Wimpey set aside £130 million for an assistance scheme for buyers of its homes who have been affected.
Economists expect one or maybe two quarter-point interest rate hikes this year from the current level of 0.5 per cent. As a result mortgage borrowers have been flocking to fixed rate deals.
Latest official figures show that more than 90 per cent of mortgage loans issued by banks were at fixed rather than variable rates.
Sterling spiked last week after Bank of England chief economist Andy Haldane joined those on the Monetary Policy Committee voting for a rate hike, suggesting the Old Lady may raise rates sooner than expected. The pound rises when interest rates go up because investors who hold sterling earn a higher return.
Ray Boulger, a mortgage expert at broker Charcol, said the price of Government bonds trading in the market had barely moved, meaning long-term expectations for rates are unchanged.