Shares in UK housebuilders slumped to their lowest level in almost a decade on Friday after HSBC published analysis predicting house prices in London could fall by as much as 15 per cent.
The research forecasts that demand for UK housing will fall 20 per cent from this autumn because of rising mortgage rates and inflation.
HSBC expects average UK house prices will fall 7.5 per cent outside London, while prices in central London will drop by twice that. For new build homes, the research forecasts a 5 per cent drop.
The HSBC note accelerated a drop in the shares of the country’s biggest developers, which have already suffered average declines of 40 per cent this year.
Shares of Redrow, Barratt Developments and Berkeley Group were down between 4 per cent and 7 per cent in morning trading on Friday after the note.
Expectations that UK house prices will begin to fall have been steadily growing in recent months, as the Bank of England has pushed up interest rates in an effort to tackle steeply rising inflation.
Rising borrowing costs have made it harder for buyers to access the market and have added to a growing list of problems for listed developers, which have been hit by the withdrawal of key government support measures in recent months and the economic downturn.
Since the last financial crisis, housebuilders have enjoyed near-uninterrupted profit growth and buoyant share prices.
The sector even remained resilient during the pandemic, recovering strongly from a correction when the market was closed early in 2020. By later that year, demand had recovered to hit fresh highs.
But after a long period of growth, underpinned by low interest rates and government support, the market is showing signs of cooling.
HSBC analysts now expect earnings before interest and tax at the UK’s biggest listed builders to fall by between 32 per cent and 53 per cent — with an average of 43 per cent — by 2023-24 compared with 2022.
Rob Perrins, chief executive of London-focused developer Berkeley, said there were “tough times to come”, but added that the bank was far too pessimistic about the market, particularly in the capital.
“I think we’ll have some choppy times, but to say demand is going to fall off that amount is wrong,” he said.