Britain’s housebuilders were the top stock market fallers on Monday after one of the sector’s biggest companies issued a profit warning and data revealed the fastest drop in asking prices in five years.
Housebuilder Crest Nicholson said it expected to make a profit of about £50m this financial year, compared with about £74m expected in June, as the number of house purchases had fallen in recent weeks.
The alert sent housebuilding shares tumbling. Taylor Wimpey led the fallers on the FTSE 100, down 4%, with Persimmon, Berkeley and Barratt down more than 2% as more than £500m was wiped off the value of Britain’s largest housebuilders. The property website Rightmove also fell nearly 2% and Crest Nicholson was the biggest faller on the FTSE 250, down 10%.
Homebuilder shares tumble as UK housing market weakens – business liveRead more
It was the latest sign that rising interest rates to combat high inflation, a slowing economy and the wider cost of living crisis are weighing on the UK housing market. Home sellers reduced their asking prices by 1.9% on average in August, the most since 2018, according to data from Rightmove.
In its effort to push down inflation, the Bank of England has raised interest rates from 0.25% in late 2021 to 5.25% at its meeting earlier this month, the highest level since the financial crisis in 2008. That has prompted mortgage rates to rise rapidly, making borrowing for housing more difficult for many prospective buyers.
Crest Nicholson said the number of transactions was dropping. The amount of first-time buyers, who have generally not built up as much equity as older property owners, has dropped particularly sharply because of the end of the help to buy housing subsidy, the company said.
“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,” it said in a statement to the stock market. “While pricing has remained resilient in a market with limited supply and few distressed sellers, the economic uncertainty is deterring prospective home movers.”
Victoria Scholar, the head of investment at the share trading website Interactive Investor, said: “Expensive mortgages, wider cost-of-living pressures and a general backdrop of macroeconomic unease with sluggish growth and increasing slack in the labour market are taking their toll on house prices, which are expected to feel further pain as the year progresses.”
While the slowdown is expected to affect builders’ profits, the drop in asking prices comes in the context of decades of rises which have put home ownership out of reach for many first-time buyers. The 1.9% drop in asking prices – equivalent to a £7,012 price cut – left the average asking price on Rightmove’s platform at £364,895, the company said. Even after the drop, average prices were £59,000 higher than in August 2019, a 19% increase.
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Government data showed that the average UK house price was £288,000 in June, £5,000 higher than 12 months ago, albeit £5,000 below the recent record in November 2022.
Tim Bannister, who oversees Rightmove’s data, said: “There is no glut of properties for sale, with the number of available properties still lower than at this time in 2019 and homes still selling more quickly, with the average time to find a buyer now 55 days compared with 61 days in 2019.
“The lower level of agreed sales compared with this time in 2019 indicates the affordability challenges that many buyers currently face.”
