UK housebuilder Crest Nicholson has reported a 60 per cent drop in profits after last year’s mini-Budget caused turmoil in the property market and warned of risks ahead from inflation.
Mortgage rates have climbed sharply in recent weeks in response to a higher than expected UK inflation figure of 8.7 per cent in April, derailing a recovery of confidence in the housing market after the chaos of late last year.
“Sentiment certainly improved some way from the lows of January as we moved through the spring and into May. I think we had some pretty stable conditions. That has moved more negatively as a result of that inflation [figure],” said Peter Truscott, chief executive of Crest Nicholson.
If inflation continues to be higher than expected, the Bank of England is likely to raise interest rates further, increasing borrowing costs for homebuyers.
“In terms of the market going forward, a lot will depend on the next couple of inflation prints and the reaction to that,” Truscott said.
Crest Nicholson shares were down 5.8 per cent in morning trading in London.
UK house prices recorded their first annual fall in more than a decade in May, mortgage lender Halifax reported this week. The Royal Institution of Chartered Surveyors warned that “storm clouds are gathered” and borrowing costs would put more downward pressure on the market in the coming months.
“This is the first week that we’ve seen average [mortgage] rates of 5 per cent or more in all [loan to value] brackets since early January. We’ve now seen the majority of lenders change their rates after an initially slow response to the inflation figures,” said Rightmove mortgage analyst Matt Smith.
Housebuilders had been hoping for a steady improvement in the market in the second half of the year. “Since the recent big inflation print, improving momentum in selling rates has stalled,” Jefferies analysts wrote.
Crest Nicholson reported adjusted pre-tax profits of £20.9mn in the six months to the end of April, down from £52.5mn for the same period the year before, a fall of 60.2 per cent, reflecting the impact of the mini-Budget. Home completions fell almost a fifth to 894. The FTSE 250 group held its interim dividend at 5.5 pence per share.
Truscott said he expected house prices would be resilient, supported by strong employment, but that uncertainty over interest rates would show up in lower transaction volumes. “There are still very few distressed sellers out there,” he said.