Mortgage rates hikes help to wipe 20% off Berkeley sales
Rate hikes help wipe out 20% of sales in Berkeley
The boss of the UK’s largest homebuilder has warned that the property market will remain ‘unstable’ until interest rates stabilize – as he forecasts a dramatic 20 per cent drop in turnover this year.
Berkeley CEO Rob Perrins said homebuyers need more certainty about how high rates can get before making a real estate decision.
But mortgage rates have been turbulent, rising in recent weeks as the Bank of England tries to curb stubbornly high inflation, which has spilled over into credit deals.
Alarm: Berkeley chief exec Rob Perrins (pictured), said homebuyers need more certainty about how high rates could go before making a real estate decision
To make matters worse, inflation unexpectedly remained at an annualized 8.7 percent in May, adding pressure to the Bank of England to raise the cost of borrowing further today.
Perrins said yesterday: “The outlook for the housing market will be volatile for a while until interest rates stabilize, bringing confidence back to the market.”
The FTSE 100 group reported a 15 per cent drop in new home sales in the 12 months to April, while investors were further put off by forecasting a 20 per cent drop for next year.
The grim situation saw shares in Berkeley fall 1.6 percent, while rivals Barratt, Persimmon and Taylor Wimpey also fell between 3.5 percent and 4 percent.
A rate hike today would push up the cost of a new mortgage for the 800,000 homeowners who have to close a new deal this year, and will also deter buyers.
The persistently high inflation has caused mortgage interest rates to rise sharply in recent weeks, pushing the average interest rate on a two-year fixed-term loan above 6 percent.
Concerns: Berkeley, which focuses on redeveloping land formerly used for industrial purposes, said it will remain cautious about new investments due to volatility
And it means the estimated 1.6 million households moving off fixed-rate mortgages next year could face an additional bill of nearly £3,000 each year.
Several High Street lenders have already raised rates pre-emptively, with NatWest raising many of its two- and five-year deals by 30 basis points overnight.
Berkeley, which focuses on redeveloping land previously used for industrial purposes, said it remains cautious about new investments due to volatility.
For the year ended April 30, Berkeley’s profit was £604m, up from £551.5m last year, amid strong performance until market turmoil hit in September after the mini budget.