Berkeley, the London-focused housebuilder, has issued a mortgage warning that Middle East tensions could put pressure on the UK property market by driving inflation higher and prolonging elevated borrowing costs.
The developer, which constructs homes across the capital, Birmingham and southern England, stated that recent trading has been "constrained by the impact on consumer confidence of geopolitical events and macro-economic uncertainty".
According to the company, the unfolding Middle East situation is "weighing heavily on risk sentiment", with concerns about inflation rising this year and interest rates remaining elevated for an extended period.
Despite these challenges, Berkeley confirmed it expects pre-tax profits of £450 million for the current financial year, with similar performance anticipated next year.
The property market will be impacted by the US-Iran war, experts warn
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The Government's official forecaster, the Office for Budget Responsibility (OBR), has cautioned that UK inflation could increase by one percentage point this year should energy prices stay at their current heightened levels.
Meanwhile, average mortgage rates have climbed beyond the five per cent threshold as lenders rush to adjust their pricing, according to data from Moneyfactscompare.co.uk.
Several of Britain's largest banking institutions, including HSBC UK, Barclays, Santander, Halifax, and Lloyds, have all raised their mortgage rates this week.
Industry observers suggest additional increases may follow in the coming weeks, adding further pressure to prospective homebuyers already grappling with affordability concerns.
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Despite the challenging conditions, Berkeley reported that inquiries for new properties have been strong, with reservation values recovering towards levels witnessed during the summer months before demand softened ahead of the autumn budget.
The housebuilder expressed a "positive" long-term view of the London market, emphasising the capital's "resilience" in the face of current turbulence.
Berkeley suggested that present market volatility presents an attractive buying opportunity for purchasers who have ready access to funds.
The company's confidence in London stems from the city's established position as an international centre for financial services and technology sectors.
Bank of England interest rates over time | Bank of England Dan Coatsworth, head of markets at AJ Bell, offered a mixed assessment of Berkeley's position, stating: "While it is sticking with its full-year guidance, the broader outlook looks gloomy thanks to geopolitical issues and the likely impact on consumer confidence, inflation and interest rates."
He noted that housebuilders had been anticipating a gradual decline in borrowing costs following the post-Covid difficulties, but "the foundations of that cosy narrative have been shaken by recent events in the Middle East".
Mr Coatsworth indicated that Berkeley's management appears focused on prioritising cash generation, strengthening its balance sheet and expanding build-to-rent operations to create more predictable income streams.
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