Britain’s housebuilders experienced a significant decline in their stock market values on Monday, with one of the largest companies issuing a profit warning and new data revealing the fastest drop in asking prices in five years. Taylor Wimpey led the fallers on the FTSE 100, down 3.5%, while Persimmon, Berkeley, and Barratt also saw declines of over 2%. The property website Rightmove also fell nearly 2%.
Among the housebuilders, Crest Nicholson was hit the hardest on the FTSE 250, experiencing an 8% drop after issuing a profit warning. The company anticipated a profit of approximately £50 million for this financial year, compared to the expected £74 million in June, as the number of house purchases decreased in recent weeks.
This news highlights the impact of rising interest rates, aimed at combatting high inflation, as well as a slowing economy and the broader cost of living crisis, on the UK housing market. Data from Rightmove reveals that home sellers reduced their asking prices by an average of 1.9% in August, the largest decline since 2018.
The Bank of England’s efforts to curb inflation led to an increase in interest rates, from 0.25% in late 2021 to 5.25% in its most recent meeting, the highest level since the 2008 financial crisis. This rapid rise in mortgage rates has made it more difficult for many potential buyers to secure financing for housing.
Crest Nicholson attributed the drop in profits to a decrease in the number of transactions. The end of the help to buy housing subsidy has particularly impacted first-time buyers, who generally have less equity than older property owners.
Victoria Scholar, Head of Investment at the share trading website Interactive Investor, commented on the situation, stating that expensive mortgages, broader cost-of-living pressures, and macroeconomic uncertainty with sluggish growth and increased slack in the labor market are all contributing to the decline in house prices. She predicts that house prices will continue to suffer throughout the year.
While the slowdown is projected to affect builders’ profits, the drop in asking prices must be considered alongside decades of price increases that have made homeownership unattainable for many first-time buyers. Even after the decline, the average asking price on Rightmove’s platform remains £364,895, a £7,012 reduction. Furthermore, average prices are still £59,000 higher compared to August 2019, representing a 19% increase.
Government data indicates that the average UK house price reached £288,000 in June, £5,000 higher than the previous year, though £5,000 below the recent record set in November 2022.
Tim Bannister, responsible for overseeing Rightmove’s data, noted that there is no oversupply of properties for sale, as the number of available properties remains lower than in 2019. Homes are also selling more quickly, with the average time to find a buyer now 55 days compared to 61 days in 2019. However, the lower level of agreed sales compared to 2019 reflects the affordability challenges facing many buyers at present.
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