Crest Nicholson reduces profit expectations due to market slowdown affecting housebuilding

Crest Nicholson has revised its annual earnings forecast downward due to a significant slowdown in the UK housing market during the summer.

The housebuilder, based in Surrey, now expects to report an adjusted pre-tax profit of £50 million for the year, reduced from previous estimates of £73.7 million.

The decline in new-build completions in 2023 has significantly impacted the British property construction sector, largely due to interest rate hikes increasing mortgage costs.

The industry has also been impacted by labor shortages, rising building material costs, and the recent end of the Help to Buy equity loan scheme, which accounted for a significant portion of sector sales.

Although house prices have remained strong, Crest stated that sales volumes have softened, particularly in recent weeks.

The company originally projected an average of 0.5 homes sold per week at its outlets two months ago, but the actual figure for the seven weeks ending August 18th was half that volume.

Given the Bank of England’s predicted further base rate hikes, Crest does not anticipate a significant improvement in trading conditions before the end of the financial year in late October.

In response, the company plans to reduce land purchases, merge its East Anglia operations into its Eastern division, and lower its overhead position. It has not confirmed whether there will be job cuts.

Crest Nicholson shares fell 9.1% to 176.3p on Monday morning, making them the biggest decliner on the FTSE 250 Index.

Shares in other major housebuilders, such as Taylor Wimpey, Persimmon, and Vistry Group, also decreased by at least 2.5% during early trading.

Charlie Huggins, head of equities at investment service Wealth Club, stated, “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.”

Rightmove reported on Monday that the average asking price for UK homes fell by £7,012 to £364,895 in August, the largest drop for that month in five years. The volume of agreed sales was also 15% below pre-pandemic levels due to higher mortgage rates causing some to pause their moving plans. However, relief may be provided as major lenders, including NatWest and Nationwide, have recently begun reducing rates on fixed mortgage deals. But if the central bank continues to raise its base rate, mortgage rates are likely to increase again.

Many analysts predicted this scenario after the Office for National Statistics released figures last week indicating a 7.8% increase in regular pay in the UK between April and June.