Crest Nicholson slashes earnings forecast as market slowdown hits homebuilder

Crest Nicholson has downgraded its annual earnings forecast following a significant slowdown in the UK housing market over the summer.

The Surrey-based homebuilder now expects to report adjusted pre-tax profit of £50m this year, down from previous estimates of £73.7m.

The UK property construction sector has been hit hard by a decline in new construction completions in 2023, largely due to interest rate rises driving up mortgage costs.

Trading was further impacted by labor shortages, higher construction materials costs and the recent end of the Help to Buy equity lending scheme, which accounted for a large portion of the industry’s revenue.

While home prices have remained robust, Crest told shareholders that sales volumes had declined, “particularly in recent weeks.”

Two months ago, the company expected its outlets to sell an average of 0.5 homes per week, but the actual figure for the seven weeks ending Aug. 18 was half that volume.

As the Bank of England is expected to make further key rate hikes, Crest does not predict a “material improvement in trading conditions” before the end of the fiscal year at the end of October.

In response, the company expects to reduce land acquisition activity, merge the East Anglia business with the Eastern division and reduce its ‘overhead position’.

Crest does not want to confirm to This is Money whether jobs will also be cut.

Crest Nicholson Shares fell 9.1 percent Monday morning to 176.3 pence, becoming the biggest faller on the FTSE 250 Index.

Stocks in other major homebuilders reacted negatively, with Taylor Wimpey, Persimmon and Vistry Group all falling at least 2.5 percent in early trading.

Charlie Huggins, head of equities at the Wealth Club investment service, said: “The housing market is on a very shaky footing.

While inflation appears to be easing, the Bank of England is expected to tighten the screw further in the coming months. As such, it seems unlikely that trading terms for Crest Nicholson or his colleagues will improve any time soon.”

Rightmove also released figures on Monday showing asking prices for UK homes fell by an average of £7,012 to £364,895 in August, the biggest drop for that month in five years.

Meanwhile, the volume of agreed sales was 15 percent below pre-pandemic levels “as higher mortgage rates mean some have had to put their relocation plans on hold for the time being,” according to the real estate portal.

Britain’s biggest lenders, including NatWest and Nationwide, have recently begun cutting fixed mortgage rates, providing much-needed relief for many homeowners.

But they remain well above levels of recent years and are likely to rise again if the central bank continues to raise its key interest rates.

Many analysts warned that this was likely to happen after figures released last week by the Office for National Statistics showed regular wages in the UK rose by 7.8 per cent between April and June.