Britain’s housebuilding companies are facing a sharp downturn in sales and profits as soaring mortgage costs threaten a double-dip in residential property demand, according to HSBC Holdings Plc.
(Bloomberg) — Britain’s housebuilding companies are facing a sharp downturn in sales and profits as soaring mortgage costs threaten a double-dip in residential property demand, according to HSBC Holdings Plc.
Shares in British homebuilders fell sharply Friday, as HSBC analysts John Fraser-Andrews and Brijesh Siya issued a slew of downgrades in the sector, saying that a “double dip in demand, further correction in house prices and a brutal squeeze on operating margin were all looming.”
Berkeley Group Holdings Plc was among the biggest losers, shedding as much as 6.2%, as the analysts cut their recommendation on the stock to reduce from hold, noting its exposure to the hard-hit London market. HSBC had been bullish so far on the so-called “volume” housebuilders Barratt Developments Plc, Bellway Plc, Crest Nicholson Plc, Persimmon Plc, Redrow Plc and Taylor Wimpey Plc, but lowered its stance to hold from the previous buy.
Vistry Group Plc was the only firm to keep its buy rating at the broker but shares fell 3% nonetheless.
The FTSE 350 Household Goods and Home Construction Index fell 2.7% as of 10:10 a.m. in London, having shed more than 8% already this week.
Mortgages have become a bugbear for both borrowers and the government in Britain as rates soar, threatening to leave households destitute and the economy in tatters. The Bank of England delivered an interest rate hike to 5% this week, while average two-year fixed-rate mortgage rates stand at 6%, treble year-ago levels.
HSBC’s latest recommendations represent a U-turn from their view in April when they upgraded volume householders, arguing that the upcoming downturn was more than priced in.
Now, Fraser-Andrews and Siya forecast a 15% fall in prices for existing homes and 10% decline for new builds in central London by September 2023. Outside central London, they predict prices to slide 7.5%.
Additionally, they see an average 20% decline in completions, excluding Berkeley, over the next two years, flagging the slump in the sales reservation rate toward the end of 2022.
That would leave the volume homebuilders’ operating profits “materially” lower by 2027 than in 2019, they predicted.
–With assistance from Michael Msika.
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