War in Middle East could weigh on housing market, says Berkeley
The housebuilder Berkeley has cautioned that conflict in the Middle East could weigh on the housing market, potentially pushing up inflation and keeping interest rates elevated.
The company said trading over recent months has remained “constrained by the impact on consumer confidence of geopolitical events and macro-economic uncertainty”. The emerging situation in the Middle East was “weighing heavily on risk sentiment”, Berkeley said, and that it was mindful of the potential for higher inflation this year, and for interest rates to stay higher for longer. The remarks come after the Office for Budget Responsibility (OBR), the Government’s official forecaster, warned that one percentage point could be added to UK inflation this year, if energy prices remain at current elevated levels.
Average mortgage rates have risen past the 5 per cent mark as lenders have scrambled to hike their rates, according to figures from Moneyfactscompare.co.uk. Some of Britain’s biggest lenders including HSBC UK, Barclays, Santander, Halifax and Lloyds have increased mortgage rates this week and further hikes could be around the corner.
Despite the developments, Berkeley said sales inquiries for new homes were good and the value of reservations has been recovering towards the levels seen over the summer, prior to a pre-autumn budget lull in demand. The company said it was still expecting to make a pre-tax profit of £450 million for the latest financial year, and similar in the year ahead, so was making no changes to previous guidance.
It also heralded a “positive” outlook for the London market in the long term, saying the city has “resilience” and that the current volatility was a good opportunity for customers with liquidity to buy.
Richard Hunter, Head of Markets at interactive investor, commented: "In a brief trading statement, Berkeley Group maintained its previous guidance of full year pre-tax profit of £450 million and net cash of £300 million - notwithstanding the potentially debilitating effect of the US/Iran conflict on consumer confidence.”
He continued: “For the moment, Berkeley finds itself wading through treacle given guarded consumer confidence and the possibility of higher for longer interest rates keeping some potential new buyers on the sidelines. Even though the revitalised planning system is in train, it will take some time to bed in. Berkeley noted a good level of sales enquiries, with underlying reservations edging back towards the pre-Budget lull.
"The overarching concerns have fed through to a share price which has eked out a gain of 4 per cent over the last year, as compared to a rise of 21 per cent for the wider FTSE100, although the price remains down by 19 per cent over the last two years.
"Of course, this is a highly cyclical sector and if nothing else, the perennial undersupply of homes in the UK will provide future opportunities. For now, the market consensus of the shares as a hold is reflective that for investors, the wait has been too long and there are potentially more attractive opportunities elsewhere in the sector.”
Oli Creasey, head of property research at Quilter Cheviot, said that much of the sentiment around the housebuilding market will rest on ongoing events in the Middle East.