Berkeley shares hit, but FTSE ends higher
And finally, Berkeley Group closed down 5.4% on the London stock market tonight, amid disappointment that it won’t boost its house-building programme.
Other housebuilders also suffered, with Taylor Wimpey and Persimmon both losing around 1.3%.
David Madden of CMC Markets says:
Traders received an insight into the psyche of Berkeley Group today after the company hit out at planning permission policies and buy-to-let lending practices.
The homebuilder maintained their positive forecasts and stated that its position is ‘resilient’, but the commentary about the backdrop indicates some nerves. The company is focused on London and south-east England, and house prices are a touch softer now, which is also weighing on the stock.
The broader FTSE 100, though, finished 24 points high, or 0.4%, at 7,164.14.
Shares are higher on Wall Street too, with the Dow still up around 80 points (0.3%).
That’s all for today. Thanks for reading and commenting, GW
Berkeley’s announcement is still causing a stir on social media.
Chris Blythe, CEO of the Chartered Institute of Building, isn’t impressed:
What is meant is that our homes are too expensive and if we built more we would have to reduce our prices and make less profit. So we will bank our land until the government blinks and provides more subsidies to us to maintain our 30%+ margins
— Chris Blythe (@CEOCIOB) March 16, 2018
https://t.co/OUc3OiUAFl
Here’s more reaction:
Rant of the day...It’s no surprise Berkeley Homes won’t increase production. None of the volume builders will for the simple reason it will impact on their margins. Why would they build more for less!
— Ian Stimpson (@Istimpson) March 16, 2018
Not to give more help to buy for a start. Perhaps Berkeley could make their homes less costly https://t.co/w6iTFPDrZK
— Chris Blythe (@CEOCIOB) March 16, 2018
Berkeley Homes are not building any extra homes due to 'economic uncertainty' but are on track to make 3.3 billion profit. How can you make 3.3 billion just building homes, bricks and motor. Guess who's getting ripped off in this process
— Corey Musa (@CoreyMusa) March 16, 2018
(that’s £3.3bn between 2016 and 2021 - not to be sniffed at!)
The financial markets are pushing higher today, as the surge in US consumer confidence cheers traders.
In London, the FTSE 100 is up 17 points, or 0.2%, as it meanders towards the end of the trading week.
On Wall Street, the New York stock market has opened higher too. The Dow has gained 64 points, or 0.25%, to 24,938 points.
Traders are sitting back and waiting for new fireworks from the White House on either tariffs, or staff changes (at pixel time, HR McMaster remains America’s National Security Adviser, despite rumours he might be replaced soon).
Here’s the situation across the markets:
I’ll be back if anything major happens. Otherwise, best wishes for the weekend...
Another sign that US citizens are feeling more optimistic:
Breaking: Michigan consumer sentiment - all-time high (data go back to 1978) pic.twitter.com/9z9WBmNpI0
— Lawrence McDonald (@Convertbond) March 16, 2018
US consumer sentiment jumps
Newsflash: US consumer sentiment remains strong, in a sign that American citizens aren’t worried about the risk of trade wars.
The University of Michigan’s monthly gauge of consumer morale has jumped to 102 this month, up from 99.3 in February. That’s a 14-year high!
#UnitedStates Michigan Consumer Sentiment Prel at 102 https://t.co/CYGdEmm87g pic.twitter.com/SB61h3KMaw
— Trading Economics (@tEconomics) March 16, 2018
The survey suggests that Donald Trump’s economic programme, including recent tax cuts, are proving popular:
There is a lot of positive sentiment being reflected in the UMich data on Trump's economic agenda: pic.twitter.com/I7sAQD0FzG
— Michael McDonough (@M_McDonough) March 16, 2018
uMich: "all of the gain in the Sentiment Index by March 15th was among households with incomes in the bottom third (+15.7), while the economic assessments of those with incomes in the top third posted a significant monthly decline (-7.3)"
— Luke Kawa (@LJKawa) March 16, 2018
Updated
In other news, pub chain JD Wetherspoon has sounded a cautious note.
The group told the City this morning that it expects like-for-like sales growth to slow over the next six months, following a 6.1% rise in the last half-year.
Chairman and founder Tim Martin also warned that Wetherspoon’s faced higher pay, taxes and utilities bills in the months ahead.
Martin, a vocal supporter of Brexit, has also been touring the media studios discussing Britain’s exit from the EU.
He told Bloomberg that claims Britain would suffer food shortages after a hard Brexit was ‘utter and complete tosh’. He argues that EU tariffs push up the cost of food imports (from outside Europe) into the UK.
If we can get rid of those tariffs, incomes and standards of living in the UK will rise.
The idea of a food crisis after Brexit is "complete tosh," JD Wetherspoon's Tim Martin says https://t.co/nmNFWjQcpH pic.twitter.com/1vKiJbPAq0
— Bloomberg (@business) March 16, 2018
Britain isn’t the only country struggling to build houses.
New data from America shows that the number of new house-building projects slumped by 7% in February, to an annual rate of 1.236 million. That’s weaker than expected.
The number of housing permits being doled out to US builders also fell, by 5.7%.
US housing starts and permits declined sharply in February, erasing January's gain. This is another sign of weakness in the housing market pic.twitter.com/rxWIBbfU5c
— Ulrik Bie (@UlrikBie) March 16, 2018
Jefferies analyst Anthony Codling says the UK government should heed Berkeley’s warning that it can’t justify speeding up its house-building programme.
Codling says:
“Whilst some view being a housebuilder as a licence to print money, it turns out that constructing homes is more complicated than building a printing press.
“We need more homes, but when even the master craftsmen are constrained we need Government policy to help, not hinder.”
The government has recently announced some new steps; it is reviewing the UK planning system, in an attempt to close the gap between available land and the actual number of houses being built.
Updated
If housebuilders such as Berkeley are unwilling or unable to boost their production, it will be harder for renters to make the jump onto the housing ladder.
Over the last decade, sharp price rises in London and the South East -- where Berkeley operates - have made it tougher for first-time buyers, as these tweets show:
Just before the financial crisis, two-in-three (66%) first time buyers in London bought properties worth
— Matt Whittaker (@MattWhittakerRF) March 16, 2018
less than £250k. A decade on (a decade of economic turmoil and very weak income growth) that proportion has fallen to just one-in-ten (9%) pic.twitter.com/vSTRWnlmy6
Across the UK as a whole, the drop is more muted: from 93% to 72% pic.twitter.com/RdMo1IEoy6
— Matt Whittaker (@MattWhittakerRF) March 16, 2018
Berkeley’s reluctance to build more homes is a serious concern, says Helal Miah, investment research analyst at The Share Centre.
“Berkeley themselves have said that the limit to production will be a blow to the housing market because of the need for so many more homes.
The London market has fared the worst since Brexit and should this spill over to the rest of the market then it will be big blow to the government as limited production will do nothing to bring house prices to more affordable levels.
Berkeley Group are still firmly at the bottom of the FTSE 100 leaderboard, after refusing to boost housebuilding output this morning.
Fiona Cincotta, senior market analyst at City Index, says investors are disappointed with the company’s stance, and wondering how the prime minister will respond:
Berkeley Group’s announcement not to expect additional growth on top of previously announced housebuilding plans has gone down like a lead balloon. Shareholders quickly sold out this morning as the housebuilder positions itself directly against Theresa May. Berkley group appear unfazed by government threats of snatching unused land and planning blocks should housebuilders refuse to ramp up the number of homes it builds.
Berkeley group has pitched itself directly against the government citing building costs, limits of mortgage borrowing and prevailing economic uncertainty as reasons not to build more homes that it had originally planned.
Eurozone inflation falls, but UK consumers hit harder
Just in: inflation across the eurozone has fallen to just 1.1% in February, down from 1.3% in January.
That’s good news for consumers across the euro area. But, it also means the European Central Bank’s efforts to drives prices up - by injecting tens of billions of new euros into the system each month - haven’t worked yet.
Inflation across the wider EU was 1.3% in February. Britain suffered one of the highest rates, with prices rising by 3% year-on-year.
Euro area annual #Inflation down to 1.1% in February (January 1.3%) #Eurostat https://t.co/rrzkw1Fclm pic.twitter.com/HvYJ1dw2pa
— EU_Eurostat (@EU_Eurostat) March 16, 2018
Bank of England: Mortgage lenders are taking more risks
Newsflash: The Bank of England has warned high street banks are starting to take increasing risks selling mortgages.
The BoE is suggesting it could force them to boost their financial buffers to protect against losses.
Threadneedle Street said almost a fifth of new mortgage lending was just below the limits set by its financial policy committee for banks to sell consumers a loan of no-more than 4.5 times their income.
[that’s the limit which Berkeley cited as a reason not to build more homes this morning]
Putting lenders on notice over the increasing risks, the Bank of England said no action was required at this stage but that it would reconsider whether to force banks to hold more capital in June.
The Bank has also revealed that its annual stress test for the major British banks would be almost identical to last year, when it concluded they would all be able to withstand a disorderly Brexit.
Barclays, HSBC, RBS, Santander UK, Standard Chartered and Nationwide will be put through their third annual healthcheck this year, designed to spot warning signs in the banking industry to prevent a rerun of the financial crisis.
The Bank said the 2018 test would include the same catastrophic economic scenario as was set in 2017, which was much tougher than the conditions seen in the financial crisis. The test includes a 4.7% fall in GDP, house prices crashing by as much as a third and interest rates rising to 4% (from 0.5% today).
Experts: Housebuilders in Mexican Standoff with Theresa May
George Salmon, equity analyst at Hargreaves Lansdown, says a “Mexican stand-off” is developing between housebuilders and the government.
He explains:
Theresa May is saying builders need to open up their land banks and develop more sites, while Berkeley is unwilling to aggressively ramp up production. With conditions in the capital starting to look more precarious, it’s easy to see why Berkeley has reservations. After all, adopting overly ambitious strategies just before the market turns has caught out many a builder over the years.
Its comments on the complexity of getting work started is a clear signal to the government that it believes the best way to move forward is not to churn through the land on its books, but to remove the red tape around the development process.
Property Week agree, saying that:
Berkeley Homes has positioned itself directly against prime minister Theresa May, by refusing to increase the number of homes it builds despite government threats to housebuilders to either build homes on their land or face planning blocks.
Sarah Gatehouse, real estate tax director at Grant Thornton, tweets that the ball is back in the PM’s court:
Berkeley announces in trading update it won’t build more homes than forecast, citing high transaction costs, the 4.5 times income multiple limit on mortgage borrowing and prevailing economic uncertainty. What’s Theresa’s next move? #housing
— Sarah Gatehouse (@gatehouse_sarah) March 16, 2018
Updated
Berkeley is confident of achieving billions of pounds in profits over the next few years, without having to boost its housebuilding programme.
The company has reaffirmed its guidance to deliver at least £3.3bn of pre-tax profits between May 2016 and April 2021.
It will also return £76.3m of cash to shareholders next week in dividend payments. That’s on top of share buy-backs worth £62.9m.
Updated
Berkeley Group’s refusal to boost its house-building efforts hasn’t done down terribly well in the City.
Shares in Berkeley are down almost 6%, making it the biggest faller on the FTSE 100 this morning.
Updated
Berkeley: We can't speed up housebuilding
One of Britain’s biggest house-builders is refusing to bow to pressure from the government to build more homes.
Berkeley Group told the City this morning that various ‘market constraints’ make it impossible to boost housing supply, beyond its current plans.
Berkeley, which is focused on the South East of the UK, and London, blamed a string of factors, including:
- the cost of moving house,
- current mortgage lending limits,
- economic uncertainty
- changes to the tax rules for buy-to-let landlords
- the complexity of Britain’s planning system.
All this, Berkeley claimed, means it simply cannot justify “the step-up in Berkeley’s production levels that these markets so badly need.”
That’s a rebut to Theresa May, who two weeks ago challenged Britain’s developers to do more to tackle Britain’s chronic housing shortage.
The PM warned that the government wouldn’t tolerate sloth from housebuilders, saying:
“I want to see planning permissions going to people who are actually going to build houses, not just sit on land and watch its value rise.
Berkeley, though, aren’t caving in. Here’s what it told shareholders this morning:
The market conditions in London and the South East are unchanged from the first half with home movers and downsizers continuing to be constrained by high transaction costs, the 4.5x income multiple limit on mortgage borrowing and prevailing economic uncertainty.
In addition, domestic buy-to-let investors, who buy early in the cycle and provide security of cash flow to enable complex, capital intensive developments to be brought forward, are further impacted by additional transaction costs and the removal of interest deductibility.
These factors, together with the changing planning environment and the time and complexity of getting on site following planning approval, mean that Berkeley is currently unable to increase production beyond the business plan levels.
Updated
The agenda: White House developments add to trade tensions
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Trade war fears continue to loom over the markets today, with investors wondering if Donald Trump will soon announce fresh tariffs against China.
The latest signs of turmoil in the White House aren’t helping the mood on the trading floors either, with reports that national security advisor H.R. McMaster could be the next advisor to get the sack.
Elsa Lignos of Royal Bank of Canada says:
McMaster had sided with Cohn in the unsuccessful attempt to talk Trump out of steel/aluminium tariffs and his WH exit is now widely seen as just a matter of time.
Trump’s press secretary, Sarah Sanders, has played down the story though....
Just spoke to @POTUS and Gen. H.R. McMaster - contrary to reports they have a good working relationship and there are no changes at the NSC.
— Sarah Sanders (@PressSec) March 16, 2018
So it’s lining up to be a quiet morning in the City, while traders await developments.
European Opening Calls:#FTSE 7144 +0.05%#DAX 12367 +0.17%#CAC 5268 +0.01%#MIB 22733 +0.08%#IBEX 9680 -0.04%
— IGSquawk (@IGSquawk) March 16, 2018
In the UK, the Bank of England will be releasing the details of this year’s banking stress tests, which take place later this year.
This will examine how Britain’s biggest banks cope with a shock-horror scenario of a deep recession, rising unemployment and tumbling house prices. Do they have enough capital to cope?...
The agenda:
- 9.30am GMT: Bank of England releases details of 2018 bank stress tests
- 10am GMT: Eurozone inflation figures for February
- 2pm GMT: US consumer confidence survey from the University of Michigan
Updated
