Construction company issues profit warning as delay in interest rate cut hits market demand | Business News

Demand in the property market eased last month as hopes of a rate cut from the Bank of England faded, according to a sector report released just hours before a major housebuilder issued a profit warning.

A monthly study by the Royal Institution of Chartered Surveyors’ (RICS) pointed to a fall in prices during the month of May.

At that time, mortgage rates were rising after it became clear that there would be no imminent action by the Bank reduce borrowing costs despite some progress in its battle against inflation.

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Fixed rates fell at the beginning of the year, in anticipation of a rate cut to the 5.25% level imposed by the Bank to cope with the pace of price growth.

But news from Threadneedle St since then has been similar to ‘we’re [still] we’re not there yet” – with markets now considering August or September as the most likely months for the first reduction.

Delays in rate cut expectations – a familiar theme for markets during 2024 – have affected sentiment among buyers, RICS said, while many worry about affordability.

According to the latest data from information service moneyfacts.co.uk, the average two-year fixed home mortgage rate is currently 5.97%.

It was last above 6% in December last year.

RICS suggested buyers were waiting for borrowing costs to fall.

This trend was cited by builder Crest Nicholson for a drop in half-yearly profits, warning that its annual earnings would fall by at least a third.

Its shares lost up to 12% after the update, it also confirmed that its interim dividend has been reduced from 5.5 cents to just 1 cent per share.

In addition to the lending scenario, the company also said the election was creating “near-term uncertainty.”

Tarrant Parsons, senior economist at RICS, said: “The recent recovery in the UK housing market appears to have reversed of late, with buyer demand losing momentum slightly due to the upward movements seen in mortgage rates over the past two months.

“However, expectations point to this delaying, rather than derailing, modest improvements in the future.”