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UK finance minister pledge sends homebuilders soaring

A builder uses a saw as he works on the roof joists of a new residential home during construction.
Chris Ratcliffe | Bloomberg | Getty Images
A builder uses a saw as he works on the roof joists of a new residential home during construction.

Shares in a number of U.K. homebuilders surged over 5 percent on Monday after U.K. finance minister George Osborne revealed plans to build 120,000 new homes in the South-East, declaring it was time to "get building".

Speaking days before the budget, the Chancellor of the Exchequer said the Government's scheme for first-time home buyers "Help to Buy" would be extended to 2020 and the policy would help finance the building of thousands of new homes.

FTSE 100 house builders rallied on the news, with Persimmon surging as much as 6 percent, Taylor Wimpey climbing 5.4 percent, Barratt Developments up 5.3 percent and Bovis jumping over 4 percent.

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A new garden city, a community with landscaped gardens and open areas, is also to be built in the county of Kent, the first of its kind in almost 100 years.

"It will be a proper garden city. It is not something this country has attempted for decades," said Osborne, speaking on BBC1's Andrew Marr Show.

"That is one of the messages of my Budget. Britain has to up its ambition, Britain has to up its game, Britain has to earn its way in the world. Yes, the economy is recovering but that is not enough. We have got to finish the job," he said.

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Help to Buy was first announced at last year's budget, when Osborne said 95 percent mortgages would be backed by a government guarantee, allowing borrowers with a low deposit to get on the property ladder.

The scheme was designed to kick-start the housing market and help first time buyers. It has, however, also been partly blamed for the boom in house prices.

Property asking prices rose to a new record high in March, with average asking prices reaching £552,530 ($917,714) in London which is £8,298 above the capital's previous high, reached last October.

"The extended time frame of the scheme will aid the progression of larger and longer-term development schemes," said head of U.K. residential research at Knight Frank, Grainne Gilmore.

(Read more: Bovis ups dividend as UK housing market booms)

"The question now is whether the Chancellor will adjust the parameters or the £12.5 billion set aside for Help to Buy part 2, the mortgage guarantee, to cover the additional £6 billion cost of this four-year extension to the equity loan," she said.

Across England and Wales, asking prices are 6.8 percent or £16,251 higher than a year ago and in London they have seen annual growth of 11.3 percent, according property website Rightmove.

Rising house prices have fueled stratospheric gains for shares in U.K. homebuilders, with Barratt Developments up just over 80 percent in the last year. Persimmon and Taylor Wimpey have also seen their share price surge over 40 percent.

"There is a lot of positive stories coming out of the property market, there was a very long and pronounced period of underbuilding and there is a big boost to demand, so you can see a story to back up the movements," said head of portfolio strategy at Brewin Dolphin, Guy Foster.

By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave

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