UK Budget Delivers £5 Billion Housebuilding Boost Amid Mixed Reactions from Sector

Highlights: 

• £5 Billion Housebuilding Fund: Budget commits to affordable and social housing, aiming for 1.5 million new homes. 
• Build-to-Rent and Mortgage Support Extended: £3 billion for build-to-rent schemes; 95% mortgage guarantee schemes retained. 
• Rising Mortgage Costs Concerns: Office for Budget Responsibility warns of mortgage rate increases through 2027. 

Housebuilders saw initial gains after the Chancellor’s Autumn Budget announcement, which outlined a substantial £5 billion commitment to affordable housing and several initiatives aimed at supporting the sector. However, enthusiasm was short-lived as market concerns over rising mortgage costs and borrowing rates took hold, impacting share prices of major homebuilders like Persimmon PLC (LSE:PSN), Taylor Wimpey, and Barratt, which closed the day in the red despite early optimism. 

Budget Highlights for Housebuilding and Affordable Housing 

The Chancellor’s budget speech confirmed the government’s commitment to deliver 1.5 million new homes by the end of the current parliament, with much of the £5 billion earmarked for affordable and social housing projects. An additional £500 million boost was directed to the Affordable Homes Programme, highlighting the government’s intent to address housing shortages and support lower-income households. 

As part of this housing strategy, the government also committed £3 billion to build-to-rent schemes through housing guarantee programs, a move designed to stimulate the rental market by increasing availability and affordability of rental homes. In a significant shift, the Right to Buy scheme is set to be scaled back, with local authorities now entitled to retain all proceeds from property sales to reinvest in local housing. 

Mortgage Guarantee Scheme Retained with Review Planned 

In addition to direct investments in housebuilding, the government extended the current mortgage guarantee scheme, which provides 95% mortgages through state-backed loans. This program, initially introduced to help first-time buyers, will undergo a review, with findings expected in spring 2025. By maintaining the scheme, the government aims to keep homeownership accessible, especially for those struggling with large down payments amid rising house prices. 

However, the Office for Budget Responsibility (OBR) raised concerns about the impact of the broader economic environment on the housing market. According to OBR forecasts, mortgage rates are expected to continue rising through to 2027, with the extended spending program set to increase the cost of borrowing. The effect of rising mortgage costs may counteract some of the government’s efforts to stimulate homeownership, particularly as higher interest rates weigh on affordability for new and existing buyers alike. 

Sector Reaction: Gains Fade Amid Concerns Over Mortgage Rates 

Shares of major housebuilders initially climbed following the Budget announcements but fell back by the close. Persimmon PLC, Taylor Wimpey, and Barratt Developments, which all saw early gains of around 2%, ended the day lower as market sentiment shifted in response to mortgage rate concerns. The initial optimism was tempered by the understanding that while the Budget provided funding for new housing projects, the rising cost of borrowing may dampen housing demand in the coming years. 

With mortgage costs projected to rise, the housing market faces potential challenges that could affect future demand for new homes. For buyers, the outlook for higher mortgage rates may affect their purchasing power, and for housebuilders, increased borrowing costs could impact project financing and, ultimately, profitability. 

Cladding Removal and Safety Measures 

The Budget also addressed ongoing cladding safety issues, pledging over £1 billion to accelerate the removal of dangerous cladding from residential buildings. This funding commitment aims to resolve longstanding safety concerns following the Grenfell Tower tragedy, which highlighted significant risks in building materials and sparked a wave of cladding reviews across the UK. By providing funds for cladding removal, the government seeks to make homes safer while alleviating the financial burden on affected property owners. 

Long-Term Outlook: Balancing Growth and Affordability 

While the Budget includes notable initiatives to boost housing availability and affordability, the mixed reaction from the market highlights the ongoing challenges facing the sector. Rising interest rates, combined with inflationary pressures, present a complex environment for both homebuyers and builders. The retained mortgage guarantee scheme and new funding for affordable housing signal a government effort to address these challenges, but the OBR’s forecasts on mortgage rate increases underline potential headwinds. 

For housebuilders, the extended funding and commitment to affordable housing bring opportunities for growth, but the path forward is uncertain. Companies in the sector may need to adapt to changing market conditions, balancing increased demand for affordable housing with cost management strategies to counter rising borrowing costs. Local authorities, now able to retain proceeds from property sales, may also play a more active role in driving housing development within their communities, adding a layer of public investment to the private sector’s efforts. 

Conclusion: A Step Forward with Caveats 

The Autumn Budget has reaffirmed the government’s commitment to expanding the UK’s housing stock, especially in the affordable and social housing segments. However, the sector faces a challenging environment as rising mortgage costs threaten to impact both buyer affordability and developer financing. For now, the £5 billion fund and additional measures offer a roadmap for growth, but housebuilders and buyers alike may need to navigate rising costs and interest rate pressures in the years ahead.