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Crest Nicholson warns on profit as housing market struggles drag on

Crest Nicholson said high interest rates have hit house sales (Gareth Fuller/PA)
Crest Nicholson said high interest rates have hit house sales (Gareth Fuller/PA)

Crest Nicholson has warned its annual profit will fall by about a third this year as housing market challenges persist longer than expected.

The London-listed firm said house sales have fallen back since Easter after the Bank of England delayed its decision to cut the base interest rate until later this year.

It said that while the spring selling season “started well”, volatility in mortgage rates and a later rate cut than expected has caused it to lose momentum.

This, combined with a tricky winter period marked by sky-high inflation and mortgage rates hampering demand, has caused an 88% fall in half-year profits to just £2.6 million for the six months to April 30.

The group said it expects annual profit to be somewhere between £22 million and £29 million, down on analyst expectations of about £38 million.

The decline is based on a reduction in expected annual housing completions to a maximum of 1,900 from a previous figure of 2,000.

Crest also cut its dividend to shareholders to 1p per share, down from 5.5p last year.

It comes before incoming chief executive Martyn Clark takes over from current boss Peter Truscott tomorrow. Mr Truscott announced his retirement in January.

Crest has struggled to work through a pipeline of older, lower-margin sites of late, but also pointed to wider market forces for its most recent struggles.

At the start of the year, analysts were predicting the Bank could cut interest rates as early as May, subsequently bringing down mortgage rates and providing a shot in the arm for the housing market.

Now, because of persistently high inflation – particularly in the jobs market – experts say the central bank is unlikely to make its first rate cut until August at the earliest.

However, Crest added that build cost inflation has fallen from “mid-single digit percentages” to flat year on year.

It also said the upcoming General Election had caused some short-term market uncertainty, but it expected that to ease after polling day.

The housebuilder reported adjusted pre-tax profit of £2.6 million (3.3 million dollars) for the six months ended April 30, compared with £20.9 million a year ago.

Mr Truscott said the company has “a clear and comprehensive plan to resolve the legacy and operational issues, and continue to focus on maintaining a strong balance sheet”.

He added: “Going forward the group will benefit from its high-quality, higher margin land portfolio, and with an increased commitment to operational efficiency and control, is well-positioned to capture growth opportunities as market conditions improve.”