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House builders hit by Hammond's planning crackdown

House builders hit by Hammond's planning crackdown

Update: Shares in house builders have slumped to the bottom of the FTSE 100 after chancellor Philip Hammond announced a clampdown on house builders snapping up planning permissions but failing to start building.

In his Budget speech, Hammond said the government could use ‘direct intervention compulsory purchase powers’ if it found that ‘vitally needed land is being withheld from the market for commercial, rather than technical, reasons’.

He said he was launching an ‘urgent review’, chaired by MP Oliver Letwin, to investigate the ‘significant gap between the number of planning permissions granted and the number of homes built’.

‘In London alone, there are 270,000 residential planning permissions unbuilt. We need to understand why,’ he said.

Barratt Developments (BDEV) fell to the bottom of the FTSE 100 on the news, down 2.7% at 616.5p, while Persimmon (PSN) was close behind, 2.2% lower at £26.17.

Berkeley (BKGH) fell 2% to £36.80 and Taylor Wimpey (TW) fell 1.6% to 193.8p.

Stephen Bailey, co-manager of the Liontrust Macro Equity Income and Macro UK Growth funds, said the sell-off was an overreaction.

'We believe investors have overreacted to Philip Hammond’s announcement of a review into the practice of "land banking" – housebuilders sitting on land where planning permission has been granted, without actually building new homes,' he said.

'While this practice does act as a friction in the property market, its prevalence has actually been on the decline. Land banks have levelled off over the last few years as housebuilders increasingly look to return excess capital to shareholders rather than allow it to be tied up in undeveloped sites.'

Anthony Codling, analyst at Jefferies, also downplayed the review. 'Oh dear, another landbanking inquisition,' he said. 'Once again, history has tauight us that histiory teaches us nothing. A new team and a new inquisition into landbanking.

'Every previous inquisition has found that landbanking is a myth, and we suspect that this one will too.'

The news outweighed a boost to the sector from a scrapping of stamp duty for first-time buyers for homes worth up to £300,000. In areas of high house prices like London, buyers will no stamp duty on the first £300,000 of the purchase price of properties up to £500,000.

That news did boost shares in estate agents, however. Foxtons (FXT) was up 6.6% at 72.3p while Countrywide (CWD) rose 3.2% to 114.5p.

On the FTSE 250, shares in house builders did not suffer as heavy falls as their blue-chip peers. Bellway (BWY) was down 1.4% at £35.17, McCarthy & Stone (MCS) dropped 1.2% to 166p, while Redrow (RDW) fell 0.9% to 589.5p and Bovis (BVS) traded 1% lower at £11.21.

The pound meanwhile rose against the dollar, reversing losses incurred as Hammond delivered his speech. Sterling was up 0.3% against the US currency at $1.327, having earlier fallen to $1.322.

That was despite downgrades to UK growth forecasts from the Office for Budget Responsibility (OBR). The OBR cut its 2018 estimate from 1.6% to 1.4%, while its estimates for 2019 and 2020 were both lowered to 1.3%, from 1.7% and 1.9% respectively.

The FTSE 100 built on the morning’s gains to trade 37 points, or 0.5%, higher at 7,448.

(10:28) Thomas Cook slumps on Spain squeeze

The FTSE 100 has edged higher ahead of the Budget, but shares in Thomas Cook (TCG) slumped after the travel group reported a drop in margins, hurt by tough competition in Spanish holidays.

The UK blue-chip index rose 20 points, or 0.3%, to 7,431, but the biggest movers were to be found in the FTSE 250.

Shares in Thomas Cook tumbled 10.7% to 108.7p, as the group reported a fall in full-year operating margins, from 23.4% to 22.1%.

The group has been hurt by a price war in Spain, amid an upsurge in popularity of holidays in the country given security concern in other countries like Tunisia and Turkey.

'With destinations in the Eastern Mediterranean out of favour following political unrest, holiday providers are dashing headlong into Spanish resorts,' said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

'The increased competition is a double whammy for Thomas Cook, pushing up the cost of beds while piling the pressure on pricing as well.'

Qinetiq (QQ) was meanwhile the biggest 'mid-cap' riser, up 9.2% at 220p, after an upgrade from Berenberg analyst Charlotte Keyworth, who raised her rating on the defence and security business to 'buy' from 'hold'.

'Qinetiq's stock has been disproportionately affected in the past week following Ultra Electronics' profit warning and the subsequent readacross to wider UK defence market weakness,' he said.

'Qinetiq now screens attractively on valuation, cash flow visibility and balance sheet strength, both within the sector and in a wider market context.'

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