Housebuilder Berkeley has warned that it will be unable to increase housing production due to high transaction costs, mortgage limits and economic uncertainty.
Berkeley Group said today that a fall in demand by buy-to-let landlords was one of a number of reasons why it would be impossible to boost housing supply beyond its current plans.
It cited especially the decision to restrict mortgage interest relief to the basic rate of income tax and the 3% stamp duty levy on the purchase of new homes to rent out.
Berkeley said in a statement: “The market conditions in London and the South East are unchanged from the first half with home movers and downsizers continuing to be constrained by high transaction costs, the 4.5x income multiple limit on mortgage borrowing and prevailing economic uncertainty.
“In addition, domestic buy-to-let investors, who buy early in the cycle and provide security of cash flow to enable complex, capital intensive developments to be brought forward, are further impacted by additional transaction costs and the removal of interest deductibility.
“These factors, together with the changing planning environment and the time and complexity of getting on site following planning approval, mean that Berkeley is currently unable to increase production beyond the business plan levels.”
David Smith, policy director for the Residential Landlords Association, said: “We have long warned the government of the dangers of its tax raid on the private rented sector.
“Now we see its impact, with investment in new homes slowing and house builders not confident to up their levels of house building.
“Rather than taxing new homes, it is time for smarter, pro-growth taxation that recognises the rental market as a crucial part of addressing the housing crisis.”
Helal Miah, investment research analyst at The Share Centre, said: “The statement had a negative tone regarding the state of the housing market which cited the constraints on people moving home due to the high transaction costs, the limit on mortgage income multiples and the prevailing economic uncertainty.”
Miah said the market took this as a fairly strong sign of cation with the shares trading down by as much as 6% this morning.
He added: “Berkeley has stated that it will now be cautious on its land acquisition plan and preserve cask outflows. Despite this, the group still maintains its medium term previous targets on profits of £3.3bn for the five years to 2021 and noted that shareholder returns upheld.
“Berkeley themselves have said that the limit to production will be a blow to the housing market because of the need for so many more homes.”
Miah went on to discuss how the market has been worse since Brexit.
He said: “The London market has fared the worst since Brexit and should this spill over to the rest of the market then it will be big blow to the government as limited production will do nothing to bring house prices to more affordable levels.
“As the shares of housebuilders have been recovering from the Brexit fallout, we have been expressing our caution on the sector and as a result of this and today’s update, we continue to recommend Berkeley as a ‘hold’.
“Investors should note nonetheless that shares in the sector will for the time being continue to return strong cash flows back to investors through dividends.”