Housebuilder share prices drop as interest rates rise to 5.25%

The share prices of major housebuilders dropped this morning ahead of an expected increase in interest rates.

The Bank of England today increased the Bank Rate to 5.25%, its 14th consecutive increase. The last time interest rates were 5.25% was in April 2008. 

The Bank of England’s Monetary Policy Committee (MPC) comfirmed at midday today that the Bank Rate was going up.

The MPC today said it will “ensure that Bank Rate is sufficiently restrictive for sufficiently long”.

Six of the nine members of the MPC voted for today’s increase, with two voting for an increase of another half a percentage point.

Today’s 0.25% increase is less dramatic than July’s rise to 5% from 4.5%. It follows signs that inflation, which was at 7.9% in June, is starting to ease.

“This latest Bank Rate rise will come as disappointing news to borrowers worried about rising mortgage repayments,” Rachel Springall, finance expert at Moneyfactscompare.co.uk, said.

“A rate rise of 0.25% on the current average standard variable rate of 7.85% would add approximately £794 onto total repayments over two years (based on a £200,000 25-year repayment mortgage).”

The Bank of England today also downgraded its forecasts for 2024 to 2025, as the impacts of higher rates of interest affects the economy.

The value of listed housebuilders dropped today on the Stock Exchange as news of the anticipated Bank Rate hike emerged.

Persimmon shares dropped 1.49% this morning. Taylor Wimpey was down 1.58% and Barratt Developments also dipped 1.49%

Vistry Group shares were down 0.58% this morning, and Bellway was down 0.73%.

Peter Truscott, chief executive of Crest Nicholson, whose share price was down 1.42% this morning, says sales volumes have suffered from rising interest rates.

>> See also House sales ‘to drop 25%’ amid mortgage rate surge

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Speaking on Radio 4’s Today Programme this morning, Truscott said demand for homes remains “very strong” but that there had been fewer reservations of new homes. 

“The underlying demand remains very strong in terms of people who are interested in buying homes. But not surprisingly there has been some pause. I think a lot of people are standing on the sidelines,” Truscott said.

“The market is broadly as we expected it to be following the dislocation we experienced at the end of last year. It’s volumes rather than price that are taking the strain. Although there is some soft downward pressure on prices, it’s volumes that are going down.”

The latest house price index from Nationwide recorded that house prices were falling for the fastest rate in 14 years. However, Property portals Zoopla and Rightmove recently reported annual house price growth of around half a percent year on year.

Following the last increase in the Bank Rate, mortgage rates reached their highest level since last autumn’s “mini-Budget” caused market turmoil. 

Mortgage rates dropped in July, however, amid inflation levels that were lower than forecast, leading some analysts to suggest mortgage rates had peaked.