Crest Nicholson, the UK’s largest housebuilder, has cut its dividend and fallen into the red. This highlights the difficulties in the UK real estate sector.
The FTSE 250 company warned for the fourth year in a row that its profits would fall short of expectations. It said it was still being buffeted both by the volatile mortgage rates as well as the slowdown in demand on the housing market.
Crest reported a loss before tax of £30.9m for the six-month period ending April. This is down from £28.4m a year ago.
The number of homes completed in the first six months fell by 12% compared to a year ago. The company now expects a pre-tax adjusted profit between £22m and £29m for the entire financial year. This is below analyst expectations of nearly £39m. Early Thursday morning, shares fell by 8%.
The housebuilder stated that the momentum has “weaken slightly” since April. This is due to market expectations of interest rate reductions coming much later than expected. The general election, it said, was “creating some uncertainty in the short term”.
Crest has taken a charge of £31.4m, almost twice its original estimate of £15m. This is after it completed a review of the costs of fixing building defects on four of its locations. It reduced its interim dividend to 1p, a reduction of more than 80%.
The housing market has been affected by the economic uncertainty following the mini budget in September 2022.
The company stated that while mortgage rates were stable, consumers did not feel the need to enter the market. Many consumers waited for rates to drop.
Markets are increasingly betting that interest rates will be cut later this year. The results of the housebuilder is the latest sign that confidence in UK housing market has begun to wane.
City traders believe the Bank of England will delay reducing the cost of lending when they meet next week. Financial markets had expected four quarter-point rates cuts earlier this year. Now, they expect at most two, and the first one will not be until the late summer or early fall.
The Royal Institution of Chartered Surveyors published a study on Thursday that found a net balance of 8% of professionals in the property industry said the demand for homebuyers fell, not rose, in May. This is the lowest reading since November 20,23. The report stated that the weakest buyer demand occurred in the south east and south west of England.
Rics stated that the demand for private rental housing continues to exceed the supply, resulting in rising rents and decreasing affordability. Net balance, 35% of professionals stated that tenant demand increased rather than decreased.
Virgin Money announced a strong profit increase on Thursday. The higher interest rates were a major factor in this growth. The lender reported an increase in profit before tax to £279m for the six-month period ending March. This is up from £236m a year ago. It said, however, that its mortgages division saw a 2% drop in balances in the first six months to £56.6bn. This reflects a subdued housing market.
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