Berkeley maintains expectations despite weak housing market
- Berkeley expects to earn at least £1.05 billion in pre-tax profits this year
- The company said trading had been helped by a strong initial forward sales position.
- Demand for new construction homes has fallen significantly as mortgage rates rise
Berkeley Group has maintained its annual profit forecasts even though the value of housing stock has plummeted in recent months.
The listed housebuilder expects to earn at least £1.05bn in pre-tax profits this year and next, compared with £604m in the 12 months to April 2023. .
Berkeley told investors on Friday that weaker trading conditions had been slightly offset by a strong initial forward sales position, with more than 90 percent of turnover for the 2024 financial year exchanged.
Resilient: Berkeley Group has maintained its profit forecasts despite revealing that the value of housing stock had plummeted in recent months.
The company noted that price levels had remained resilient due to a significant housing shortage in the UK.
However, underlying bookings for private sales – where someone reserves the right to purchase a property for a period of time – over the past four months were around 35 per cent lower than the equivalent period last year.
Demand for new build homes has contracted significantly as mortgage rates have risen due to base rate increases by the Bank of England in an effort to curb high inflation.
Since December 2021, the central bank has raised interest rates 14 consecutive times, from 0.1 percent to the current 5.5 percent.
The average two-year fixed-rate mortgage now stands at 6.67 per cent, according to financial data provider Moneyfacts, up from 2.38 per cent two years ago.
The rising cost of mortgage loans has made Berkeley much more cautious about building new developments.
But the Surrey-based company also said investment had been deterred by “the complexity and protracted nature” of the planning system and a “lack of clarity” regarding regulatory changes affecting the industry.
As a result, it did not make any land purchases in the last quarter.
Berkeley Group Shares They were down 0.5 per cent at £39.51 in mid-Friday morning, although they are still up 13 per cent over the past year.
Richard Hunter, head of markets at Interactive Investor, said: ‘Berkeley is far from immune to the broader issues of mortgage availability and affordability, planning hurdles, uncertain consumer propensity to buy and a bleak outlook.
“Still, the stock has performed well on a relative basis against many of its peers, although the undemanding valuation suggests some concern on the horizon.”
Berkeley’s trading update follows similar downbeat announcements made by other UK property developers in recent weeks, including Bellway, Persimmon and Crest Nicholson.
On Wednesday, Britain’s biggest housebuilder, Barratt Developments, revealed it would pause share buybacks and cut dividend payments due to the uncertain market outlook.
Barratt revealed that its net private reserves rate plummeted by around a third last year, which it partly attributed to the closure of the Help to Buy scheme and former Prime Minister Liz Truss’ now infamous mini-Budget in September 2022.
However, the company’s turnover expanded slightly to £5.32 billion thanks to an excellent private order book position and rising average sales prices despite a broader slowdown in the UK property market. United Kingdom.
Halifax figures released on Thursday showed UK house prices fell 4.6 per cent in August, the fastest year-on-year fall in 14 years.
