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Sept. 4, 2020, 9:36 a.m. EDT

London builders under pressure as regulators open inquiry into leasehold market

By Barbara Kollmeyer, MarketWatch


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Signage on new houses built by Barratt Homes on a residential housing estate in Paulton on September 12, 2012 in Somerset, England.

London stocks were headed for a third straight losing week on Friday, with strong gains for mining companies but losses for building companies amid news regulators will open an investigation into the treatment of leasehold homeowners.

The FTSE 100 index (FTSE:UK:UKX)  rose 0.6% to 5,882.19. The index dropped 1.5% on Thursday and is looking at a drop of 1.4% for the week, adding to a string of weekly losses. The pound (XTUP:GBPUSD)  fell 0.4% to $1.3224, a loss of around 1% for the week.

The home-building sector produced the biggest decliners, with shares of Barratt Developments (LON:UK:BDEV)  down 4.5%, while Persimmon (LON:UK:PSN) , Taylor Wimpey (LON:UK:TW)  all saw losses of around 2%.

The U.K. Competition and Markets Authority (CMA) announced enforcement cases against Barratt, Countryside Properties, Persimmon Homes and Taylor Wimpey, saying its action relates to developers mis-selling ground rents, and misleading people about the availability of freehold homes and the cost of converting a leasehold to a freehold. It is also probing unfair sales tactics.

“The impact could be widespread with major developers Barratt Developments, Persimmon, Countryside Properties and Taylor Wimpey all potentially in the firing line,” said Russ Mould, investment director at AJ Bell, in a note to clients. “The last thing the sector needs heading into a recession is to face a mis-selling scandal akin to the PPI [payment protection insurance] debacle which hit the banks in the wake of the financial crisis.”

Mining companies drove the gains on Friday, with banks also higher after merger talk in the Spanish bank sector inspired gains across the industry. Shares of Rio Tinto (NYS:RIO)   (LON:UK:RIO)  rose 2.4%, BHP Group (LON:UK:BHP)  rose 1.8% and Anglo American (LON:UK:AAL)  gained 3.5%.

Oil companies also rose, helping to lift the main index, with Royal Dutch Shell (NYS:RDS.A)   (NYS:RDS.B)  up 1.7% and BP (LON:UK:BP)   (NYS:BP)  up 1.8%.

“The impact could be widespread with major developers Barratt Developments, Persimmon, Countryside Properties and Taylor Wimpey all potentially in the firing line,” said Russ Mould, investment director at AJ Bell, in a note to clients.

“The last thing the sector needs heading into a recession is to face a mis-selling scandal akin to the PPI debacle which hit the banks in the wake of the financial crisis.”

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