Crest Nicholson Cuts Profit Forecasts
One of Britain's largest housebuilders, Crest Nicholson, has issued a warning of a drop in profits, adding to concerns in the property sector. The company cited worsening market conditions due to high inflation and rising interest rates as the reasons for the slashed profit forecasts. First-time buyers have been particularly affected, as they can no longer rely on government support through Help to Buy or property equity to fund their purchases.
Shares Plummet as Investors Panic
Crest Nicholson's profit warning caused a sharp drop in its shares, which slumped by 10.6%. The news also alarmed investors in other housebuilding companies such as Taylor Wimpey, Berkeley Group, Redrow, Persimmon, and Barratt Developments, leading to a decline in their share prices as well. Collectively, the concerns about the housing market have wiped more than £2 billion off the value of FTSE 350-listed housebuilders in August.
Housing Market Slump
Crest Nicholson's warning comes in the wake of Rightmove figures showing a 15% slump in the number of house sales since 2019, with August experiencing the biggest monthly drop since 2018. Spiraling mortgage costs have made homes even more unaffordable, forcing sellers to slash their asking prices. In the past month alone, average asking prices have fallen by 1.9% to £364,895.
Rising Mortgage Rates Decrease Affordability
Mortgage rates have surged due to the Bank of England's 14 consecutive interest rate hikes. Average mortgage rates now stand at 6.76%, making buying a first home significantly more expensive than renting. According to Zoopla, a first-time buyer now has to pay an extra £122 for a monthly mortgage compared to the cost of renting the same property. Two years ago, the difference was £245.
Impact on the FTSE 250 Index
Crest Nicholson's profit warning had broader implications, causing a downturn in the FTSE 250 index, which represents the health of the British economy as it includes more domestic firms. The index fell by 1.09% or 197.61 points to 17,898.99 points.
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