"Profit warning suggests that rising interest rates and higher mortgage costs are really starting to bite"
UK housebuilding company Crest Nicholson has lowered its expected annual profit, citing high inflation and soaring interest rate as the main reasons for the weakened transaction levels in the property industry.
The housebuilder now expects adjusted pre-tax profit to reach £50 million in the year ending October 31. It had previously expected profit to reach around £73.7 million.
Crest Nicholson Holdings cuts its full-year outlook, saying the UK housing market worsened during the summer https://t.co/IlMH7mwJz2
— Bloomberg (@business) August 21, 2023
“Against a backdrop of persistently high inflation and rising interest rates, trading conditions for the housing market have worsened during the summer of this year,” the company stated in its latest trading update. “While pricing has remained resilient in a market with limited supply and few distressed sellers, the economic uncertainty is deterring prospective home movers.
“Additional mortgage borrowing for those looking to upgrade or for those with low levels of equity, notably first-time buyers, has become significantly more expensive with no government support (following the end of Help to Buy) now in place to cushion this impact. Transaction levels across the industry have therefore weakened further, particularly in recent weeks.”
The firm noted that while overall inflation is starting to fall, core inflation and wage inflation both remained high with further interest rate rises forecast over the coming months. The group did not expect to see a material improvement in trading conditions before its year-end results.
Crest Nicholson said its board remained positive and confident about the company’s outlook, expecting that, over the medium term, inflation would abate and mortgage rates would start to come down.
“Crest Nicholson is the latest in a line of house builders to offer up much weaker figures than last year and call out the government on their housing policy,” remarked Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial. “Crest is the most overt, saying that a lack of government support has made it more expensive for first-time buyers.
“They also note the drag caused by higher rates. Neither the government nor the Bank of England are likely to heed the advice of the house builders, despite both parties having the key to a more successful sector in their hands.”
Ranald Mitchell, director at Charwin Private Clients, said the Crest Nicholson figures were unsurprising and that it was likely to get tougher for newbuild property developers.
“With the maturity of many fixed rate products coming up, there will be an increase in properties listed as homeowners give up on the costs of remaining in their homes, and court-ordered repossessions start to rise,” Mitchell explained.
“With increased choice and availability of property, as well as more desirable areas to live entering the market, housebuilders will need to work hard to keep their property sales up.”
Charlie Huggins, manager of the quality shares portfolio at Wealth Club, commented that the profit warning from Crest Nicholson suggested that rising interest rates and higher mortgage costs were really starting to bite.
“The housing market is on very shaky foundations,” Huggins added. “Although inflation appears to be moderating, the Bank of England is expected to tighten the screw further in the coming months. As such, it seems unlikely that trading conditions for Crest Nicholson or its peers will improve any time soon.”
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, Twitter, and LinkedIn.
