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Shares in the UK’s biggest estate agent chains and some of the biggest British housebuilders fell on Friday, amid recent warnings about the outlook for the housing market, as potential homebuyers are weighed down by rising interest rates and the cost of living crisis.
The share price of LSL Property Services, one of the UK’s biggest estate agent chains, fell as much as 11% after it warned on profits for the second half of the year and said housing market conditions had become more challenging than expected.
Meanwhile, share prices of some of the UK’s biggest housebuilders listed on the London Stock Exchange also fell after analysts at German investment bank Berenberg cut their profit forecasts for the sector as a result of further declines in consumers’ ability to buy new homes. .
Developers including Persimmon, Taylor Wimpey, Bellway, Vistry Group, Redrow and Berkley saw trade around 1% lower on Friday morning, before recovering slightly during the afternoon.
Shares in Persimmon have fallen nearly 54% so far this year, while rival Taylor Wimpey has fallen 40% since January amid a worsening outlook for the UK housing market.
LSL chief executive David Stewart said UK housing and mortgage markets had been “disrupted by political uncertainty and rapidly rising interest rates” since the Liz Truss government unveiled a disastrous mini-budget in September.
He added: “Across the market, this has led to a reduction in mortgage activity and an increase in new home sales and a reduction in previously agreed sales.”
Analysts at Berenberg outlined their “cautious” outlook for the housebuilding sector in a research note as they forecast that UK house prices will fall by around 5% between 2023 and 2024, while property sales volumes will fall by 10%.
Homeowners are being hit by rising interest rates, while mortgage affordability is “materially deteriorating”, according to analysts.
Mortgage costs as a proportion of income have reached 50%, they report, well above the 20-year average level of 36% and close to the 52% level seen during the global financial crisis.
Analysts cut their forecasts for pretax profits for the sector by an average of 40%, adding that they expect housebuilders’ earnings to bottom out in 2024.
Russ Mold, research investment director at stockbroker AJ Bell, said the move could “surprise investors who had assumed that such potentially bad news had already factored into the value of the housebuilders’ shares”.
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