Iran War Could Impact Housing Market Says Berkeley Group

One of Britain’s largest listed housebuilders, Berkeley Group, has cautioned that the ongoing conflict in Iran may exert pressure on the property market. Despite these geopolitical concerns, the company has repeated its forecast for annual pre-tax profits of £450 million. The situation in the Middle East is creating a risk of further economic deterioration, which could constrain trading conditions.

Recent developments indicate that banks have been retracting hundreds of mortgage deals as they anticipate a potential freeze or an increase in the Bank of England’s base rate due to rising oil prices. Initially, there was an expectation that the Bank would lower the base rate from 3.75 per cent during its upcoming meeting, but current predictions suggest this may no longer be the case.

In its trading update, Berkeley acknowledged that while its operations have been constrained by geopolitical events and the resulting effect on consumer confidence, there has been a satisfactory level of sales inquiries. The firm also noted an observed hiatus in the market prior to the forthcoming budget, a sentiment echoed by Jennie Daly, Chief Executive of Taylor Wimpey, who highlighted the uncertainty created by a delayed budget announcement.

Berkeley remains optimistic about the outlook for sales in London, where it is a prominent developer. The company regards London as a resilient global city with significant financial and technological strengths. Its position as the largest financial centre in Europe and the second largest in the world remains unchanged.

In light of high macroeconomic uncertainty, Berkeley is prioritising cash generation and maintaining a robust balance sheet. Stock performance has seen a decline, with shares falling by 1.4 per cent to £37.04, representing a 5.8 per cent decrease this year.

Analysts from Peel Hunt assessed Berkeley’s latest update as straightforward, stating that while trading is restricted by consumer confidence, there is a slight underlying recovery in reservations. Anthony Codling, an analyst at RBC Capital Markets, echoed this sentiment, attributing the constrained trading environment to the effects of geopolitical events and macroeconomic uncertainty.

Despite these challenges, the value of underlying reservations is recovering towards previous summer levels prior to the budget hiatus. The long-term outlook for London, according to Berkeley, remains positive, suggesting that the current market dislocation presents a purchasing opportunity for buyers with liquidity.

Recent house price indices from mortgage lenders Halifax and Nationwide initially spotlighted a market gaining momentum, with average prices rising by approximately £3,000 to £301,151. However, the ongoing conflict in Iran may pose challenges to this optimism.