Shares of some of the UK’s biggest homebuilders and one of the country’s biggest chains of estate agents fell on Friday, amid the latest warnings about the housing market outlook, as buyers potentials are squeezed by rising interest rates and the cost of living crisis.
The share price of LSL Property Services, one of the UK’s largest estate agent chains, fell 11% after it warned of second-half profits and said conditions on the housing market had become more difficult than expected.
Meanwhile, share prices of some of the UK’s biggest homebuilders listed on the London Stock Exchange also fell, after analysts at German investment bank Berenberg cut their profit forecasts for the sector due to further declines in consumers’ ability to afford new homes. .
Developers such as Persimmon, Taylor Wimpey, Bellway, Vistry Group, Redrow and Berkeley all saw their shares fall around 1% on Friday morning.
Shares of Persimmon have fallen 54% so far this year, while shares of rival Taylor Wimpey have fallen 40% since January amid deteriorating prospects for the UK property market.
David Stewart, chief executive of LSL, said Britain’s housing and mortgage markets had been “troubled by political uncertainty and sharply rising interest rates” since the disastrous mini-budget unveiled in September by the government of Liz Truss.
He added: ‘Across the broader market, this has resulted in reduced mortgage activity and new home sales, and increased fallout from previously agreed sales.’
Berenberg analysts described their “cautious” view of the outlook for the homebuilding sector in a research note, as they forecast UK house prices to fall by around 5% between 2023 and 2024, while real estate sales volumes would decrease by 10%.
Homeowners are being hit by rising interest rates, analysts say, while mortgage affordability “deteriorates significantly”.
Mortgage costs as a share of income have reached 50%, they reported, well above the 20-year average level of 36% and close to the 52% level seen during the global financial crisis.
Analysts cut their pre-tax profit forecast for the sector by an average of 40%, adding that they expect homebuilder profits to bottom out in 2024.
Russ Mould, director of research investments at stockbroker AJ Bell, said the move “may come as a surprise to investors who felt so much potential bad news was already priced into the value of homebuilder stocks.” .