HOUSEBUILDERS yesterday issued a call for a "drastic" 0.5 per cent cut in interest rates from the Bank of England today as new analysis from investment bank experts revealed "extreme weakness" in the housing market.
The rate-cut demand came as shares in most of the major housebuilders plummeted yesterday after analysts downgraded their ratings amid fears that the UK is now heading for a major housing crisis.
Last night, the Scottish Building Federation (S
BF) and the Home Builders' Federation (HBF) both called for the Bank's monetary policy committee to cut interest rates to 4.5 per cent.
Michael Levack, chief executive of the SBF, said: "What we really need is a drastic interest rate cut – in reality, we can't expect more than 0.5 per cent this month, but that would be a start.
"Even a half per cent cut would be enough to give the market a boost."
HBF director of economic affairs John Stewart said:
"We just cannot rely on lessons learnt and solutions based on past downturns as this is a completely new situation in which we find ourselves."
Housebuilding shares fell sharply on downgrades from brokers. UBS cut its recommendations on Persimmon, Bellway and Redrow to "sell" from "neutral" and slashed price targets on Persimmon to 400p from 640p, Bellway to 580p from 795p and Redrow to 208p from 285p.
The broker more than halved its target price on Barratt Developments to 160p from 375p, but retained its "neutral" rating on the builder, as well as rivals Bovis and Taylor Wimpey.
Barratt ended the day 8.14 per cent down at 143.75p, while Taylor Wimpey dropped 5.17 per cent to 78p and Redrow fell 4.14 per cent to 214p.
Persimmon bucked the trend, surviving the session just 0.27 per cent lower.
UBS analyst Mark Stockdale said: "In light of the rapidly worsening conditions in UK housebuilding...we think it is now becoming inevitable that sector profits are going to come under extreme pressure."
The latest monthly report from the HBF showed that more than two-thirds of builders reported lower prices in April. It said that the use of sales incentives also continued to expand, while the net number of prospective home buyers visiting sites was the fourth-weakest since the federation's survey began in early 1992.
In an analysis of the UK housing figures published yesterday, Citi – one of the world's leading investment banks – warned there was "extreme weakness in housing activity".
It added that the UK housing surveys were now similar to those in the USA, where there is a full-scale housing slump.
Michael Saunders, an analyst at Citi, said: "All measures of housing activity are extremely weak and, with the credit crunch and deteriorating economic backdrop, housing demand and prices are likely to stay very weak."
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The full article contains 481 words and appears in The Scotsman newspaper.
