Shares in some of the UK’s biggest homebuilders and one of the country’s largest estate agent chains fell on Friday amid the latest warnings about the housing market outlook as potential homebuyers come under pressure from rising interest rates and the crisis in the cost of living.
Share price of LSL Property Services, one of the UK’s largest property chains, plunged as much as 11% after it warned of gains for the second half of the year and said housing market conditions had become more challenging than expected.
Meanwhile, share prices of some of the UK’s largest homebuilders listed on the London Stock Exchange also fell after analysts from German investment bank Berenberg downgraded their earnings forecasts for the sector due to a further decline in consumers’ ability to to afford new homes.
Developers including Persimmon, Taylor Wimpey, Bellway, Vistry Group, Redrow and Berkeley all saw their shares trade about 1% lower Friday morning.
Shares of Persimmon are down 54% year to date, while shares of rival Taylor Wimpey are down 40% since January on the worsening outlook for the UK housing market.
David Stewart, CEO of LSL, said the UK housing and mortgage market had been “disrupted by political uncertainty and sharply rising interest rates” since the disastrous mini-budget unveiled in September by Liz Truss’s government.
He added: “Across the market, this has led to a reduction in mortgage activity and new home sales, and an increase in the failure of previously agreed sales.”
Analysts at Berenberg outlined their “cautious” view on the outlook for the housing sector in a research note, as they predicted UK house prices to fall by around 5% between 2023 and 2024, while property sales volumes would fall by 10%.
Homeowners are hit by rising interest rates, analysts say, while mortgage affordability is “significantly deteriorating”.
Mortgage costs as a percentage of income have risen to 50%, they reported, well above the 20-year average level of 36% and close to the 52% level seen during the global financial crisis.
The analysts cut their pre-tax profit forecasts for the industry by an average of 40%, adding that they expected homebuilder revenues to bottom out in 2024.
Russ Mold, the investment director of stockbroker AJ Bell, said the move “could surprise investors who felt that so much potentially bad news had already been factored into the value of homebuilders’ shares.”