Barratt Developments PLC (LON:BDEV) and Berkeley Group PLC (LON:BKG) have led shares in housebuilders lower today after warning on London housing sector troubles and Brexit uncertainty.
In the year to 30 June 2017, Barratt said it achieved record profits, hiked its final dividend and delivered the highest level of total completion volumes in nine years.
However, it cautioned investors to only expect “modest growth” in wholly-owned completions next year, adding to worries about a slowdown in the sector.
“It’s worth noting that completions in 2017 fiscal year were only 0.4% higher than the year before – 76 more homes in all,” said Neil Wilson, senior market analyst at ETX Capital.
Barratt added that it continues to "monitor carefully" the potential impacts of the UK's vote to leave the EU on its business.
Brexit uncertainty has already taken its toll on the high-end London housing market and Barratt said its margins in this sector were under pressure during the year.
READ: Barratt Developments under the cosh as it delivers record full year profits but margins disappoint
Liberum repeated a ‘sell’ rating on Barratt, citing low margins and a decline in land purchases to 18,497 plots from 24,387 plots this year.
“The shares are our least preferred in the sector as its relatively lower margins make it more exposed to downside risk, and its relatively short landbank and high land creditors mean that it has less scope to reduce cash outflows in support of the dividend than the other returners,” the broker said.
Shares in Barratt fell 4.0% to 600.50p in late morning trading.
London market still hit by Brexit uncertainty, says Berkeley
Berkeley was also on the back foot after saying the London market continues to be hit by concerns surrounding the implications of Brexit, an increase in stamp duty and changes to mortgage interest deductibility.
Shares dropped 2.72% to 3,650p.
In a trading update for period from 1 May to 31 August, the group said it has seen a 30% decline in new construction starts in London since 2015.
READ: Berkeley shares drop as it says Brexit uncertainty continues to hurt London housing market
Yet the company left its full year guidance unchanged, saying demand continues to be supported by good availability of mortgage finance at low interest rates and a weaker pound attracting foreign investors.
Housing sector in 'goldilocks territory' that won't last, says Hargreaves Lansdown
The housing market continues to be buoyed by low borrowing costs, a supply shortage of homes and the government’s Help to Buy loan scheme.
“Although house price growth has started to slow, and question marks remain over the London market, demand has generally remained strong,” said George Salmon, equity analyst at Hargreaves Lansdown.
“Nonetheless, investors should remember that we are very much in goldilocks territory, and the combination of low interest rates and favourable government policy can’t last forever.”
The government is said to be considering ending or tapering its Help to Buy programme after 2021. Under the scheme, the government supplies a five-year interest free loan to help first-time buyers struggling to save to get on the property ladder.