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Group shares fell 15% in early trading as British real estate firm Winkworth warned that profits would fall short of expectations due to weak sales.
Sales fell 20% from the first half of last year due to higher mortgage rates, Winkworth said. As a result, earnings for the current quarter were expected to be “below market expectations.”
UK mortgage rates rose as the Bank of England raised interest rates to curb persistently high inflation. The average cost of a two-year fixed mortgage is now higher than it has been since September when Britain’s disastrous ‘mini’ budget passed.
Winkworth said mortgage approvals rose in the first quarter but are now below levels recorded in the first half of last year. Chief Executive Officer Dominic Agasse said sales orders have fallen since the Bank of England unexpectedly raised its interest rate by 0.5 percentage points to 5% at the end of June.
The group said a number of agreed-upon sales were on hold, slowing deals at all stages. Halifax reported last week that UK house prices fell 2.6% in June compared to the same month last year.
“The decline in sales applicants is not surprising,” Agus said. “I don’t have confidence… People slow down what they do.”
He added that uncertainty over inflation and interest rates weighed on the market.
“Real estate requires certainty, and uncertainty hurts transactions,” he said. “What we are waiting for is a little more certainty in inflation data and a consensus forecast.”
A weak sales market overshadowed the strong performance of Winkworth’s leasing business, which was benefited by higher mortgage costs pushing potential buyers into renting. Rental income in the first half of this year he increased by 20%, accounting for about half of the total income.
Agas said a shortage of rental properties and rising rents has been the trend in recent years.
“Boards believe confidence will return once buyers have access to a wider range of mortgage financing options, but sales prospects for the second half of the year remain uncertain,” the company said Wednesday.
Winkworth said preliminary results for the first half of the year showed total revenues fell 6% overall.
Founded in Mayfair in 1835, the real estate agency has over 100 franchises concentrated in London and the South East of England.
London was the most affordable area to buy property last year, with the average buyer spending 12.5 times their annual income on purchases, according to the Office for National Statistics.
Winkworth has announced that it will pay shareholders a dividend of 2.9 pence per share in the second quarter.