Property developers hit by higher interest rates and weak consumer confidence

Some of Britain’s most prominent home developers have posted much weaker financial performance, following a challenging 2024 for the UK housing sector.

Crest Nicholson reported turnover slumped by 28 per cent to £657.5million in the 12 months ending October, while its adjusted pre-tax profits plummeted by 70 per cent to £41.4million.

The FTSE 250 company completed 2,020 homes, 28 per cent fewer than in the prior year, as the housebuilding market experienced considerable uncertainty due to rising interest rates pushing up mortgage costs.

Subdued: Although confidence rebounded, the UK housing market continues to be affected by the Bank of England’s successive base rate hikes and concerns about falling property prices

It said trading began displaying signs of weakness during the summer of 2022 before home sales briefly collapsed in the wake of former Prime Minister Liz Truss’s mini-buget.

Although confidence rebounded, the UK housing market continues to be affected by the Bank of England’s successive base rate hikes and concerns about falling property prices.

As of 19 January, Crest’s forward sales totalled 1,732 units with a development value of £434.9million, compared to 2,018 units with a value of £510.8million in January last year.

The Surrey-based firm, which is focused on delivering homes for southern England, admitted its performance was ‘more disappointing than anticipated’.

It forecasts trading conditions to improve in the second half of the current financial year, supported by lower mortgage rates, declining inflation and wage growth.

Yet Peter Truscott, its chief executive, warned: ‘We expect the housing market will remain challenging in 2024 with elevated interest rates remaining in place until inflation falls to its target level.

‘In addition, the absence of any government support for first-time buyers, coupled with higher borrowing costs, continues to impact affordability.’

Recovery: Crest Nicholson forecasts trading conditions to improve in the second half of the financial year, supported by lower mortgage rates, declining inflation and wage growth

Crest further announced Truscott would be standing down after five years in charge to be replaced by Martyn Clark, Persimmon’s chief commercial officer.

Meanwhile, Watkin Jones declared it would not be recommending a final dividend because of the ‘uncertain market backdrop’.

The firm revealed it fell to a £2.9million pre-tax loss in the year ending September, compared to a £48.8million profit in the previous 12 months.

This was largely due to significant building safety remedial costs, with additional impacts from low forward sales activity, one-off restructuring costs and a loss on the disposal of three private rented sector assets.

Watkin Jones still saw revenue marginally tick up to £413.2million despite the poor market conditions.

Alex Pease, its chief executive, said 2023 ‘represented a period of unprecedented challenge for the business,’ given the effects of cost inflation and volatility in real estate funding.

Nonetheless, Watkin Jones noted that supply shortages in both the build-to-rent and student accommodation sectors are leading to ‘very high’ occupancy rates and rising rents.

The group sees ‘strong tenant demand and rental growth’ over the medium term, backed by estimated future revenue of £1.5billion.

Henry Boot also said it was making progress against its medium-term objectives but still expects challenging times to continue, with profitability for 2024 predicted to be ‘significantly below current market consensus’ of £37.2million.

The Sheffield-based company warned earnings would be hit by higher interest rates and gearing coming in ‘towards the upper end’ of its 10 to 20 per cent optimum range.

It further anticipates that the rebound in residential sales will be weighted towards 2025 as a result of delays in completing projects and transactions.

Following this announcement, Henry Boot shares dived 8.8 per cent to 191.5p, making them the biggest faller on the FTSE All-Share Index.

At the same time, Watkin Jones shares dived 6.1 per cent to 49.5p on Tuesday morning, while Crest Nicholson shares rose 0.7 per cent to 206.2p.

Victoria Scholar, head of investment at Interactive Investor, said: ‘The housebuilders have had a tough time amid the backdrop of decreased mortgage affordability, build cost inflation and financial pressures on households.

‘With the Bank of England expected to begin the shift towards monetary loosening in either the second or third quarter, investors have been looking back towards the housebuilder sector as a potential source of opportunity.

‘The dynamics which have punished the sector in recent years look set to shift this year, helping to lift housebuilder shares off the November lows. However, it could still be a bumpy ride ahead.’