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Major housebuilder warns economic uncertainty is deterring buyers

Trading conditions in the housing market have worsened during this summer, Crest Nicholson has warned.

A trading update from the housebuilder said while pricing has remained resilient in a market with limited supply and few distressed sellers, the economic uncertainty is deterring prospective home movers.

It said: “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.”

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The update warned that transaction levels across the industry have therefore weakened further, particularly in recent weeks. 

It said: “Although overall inflation is encouragingly starting to fall, core inflation and wage inflation both remain high with further interest rate rises forecast over the coming months.”

As a result, Crest Nicholson said it doesn’t expect to see a material improvement in trading conditions before its year end at 31 October 2023.

While the current trading conditions are challenging, Crest Nicholson said, it suggested that over the medium term it expects inflation to abate and mortgage rates start to reduce.

The housebuilder said: “In addition, the group has a strong financial position and an experienced leadership team who are used to trading through downturns in the cycle. The long-term structural shortfall of housing supply versus demand continues to increase and the Group has developed an attractive land portfolio.

“Reflecting the factors outlined above, the group now expects full year 2023 adjusted profit before tax to be around £50m.”

Commenting on the update, Charlie Huggins, manager of the quality shares portfolio at Wealth Club, said: “The profit warning from Crest Nicholson suggests rising interest rates and higher mortgage costs are really starting to bite.

“Crest Nicholson has seen trading conditions worsen significantly over the summer months. This means group pre-tax profit for the year is expected to come in around a third lower than previous expectations.

“The cost of borrowing has rocketed, and this has led to fewer homebuyers upsizing and to fewer first-time buyers. The end of the Help to Buy scheme has compounded these pressures, making it even harder for first-time buyers to get onto the housing ladder.

“The housing market is on very shaky foundations. 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.”

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