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%.
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 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.”
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