London’s housing market is facing a “slowdown” and the Bank of England is in danger of “overdoing” interest rate rises according to the chief executive of housebuilder Berkeley.
Rob Perrins told The Standard that buyers were being deterred by a lack of clarity on where interest rates are likely to peak. “What people would like is certainty … when [ interest rates] are moving, get to the end of the journey as quickly as you can.”
He was speaking as Berkeley reported annual profit of £604 million today, in line with forecasts and up 10%. It sold over 4,000 homes in London and the South East alone, with the average price for the region at £608,000, up slightly from £603,000 a year ago.
Perrins, one of the FTSE 100’s longest-serving CEOs, made the comments a day before the BoE is expected to lift rates again in its fight to tame inflation – by a quarter of a percentage point to 4.75% – in what would be the thirteenth consecutive hike. It will mean higher mortgage repayments for hundreds of thousands of borrowers.
With typical two-year fixed-rate deals now typically above 5%, Perrins said: “If you’re a discretionary buyer today, you’re not moving. You’re looking, you’re thinking about it, but you are not moving, and that is why there will be a slowdown.”
He added: “We’ve got to resolve inflation,” but warned: “The Bank of England musn’t overdo it. My concern is that they’re beginning to overdo it and they will force the economy into recession … They should give it three or four months and see where inflation is.”
The company, which has built almost 20,000 homes in the last five years, predicted that sales rates for 2023/24 would fall by around a fifth year-on-year.
But Perrins does not expect that to translate into lower prices in “an undersupplied market”, saying: “If people are standing off waiting for sales prices to fall, I think they’ll be waiting quite a long time.”
There is anecdotal evidence in the capital of sellers cutting asking prices for housing, as some buyers sit out the uncertainty over where interest rates will peak.
Things you haven't seen for a while... #housepricecrash pic.twitter.com/MUfEbepERZ
— Merryn Somerset Webb (@MerrynSW) June 19, 2023
The capital’s under-supplied rental market looks likely to support demand for home ownership, even during uncertain times.
With the BOE due to make its next announcement on interest rates at high noon on Thursday, Perrins urged policy makers “to finish what they are doing as soon as possible,” saying the Monetary Policy Committee’s preference for hikes of a quarter of a percentage point meant “they haven’t tightened quick enough during the cycle ... if they want to put it up half a percent, put it up half a percent and get on with it, and say they’re going to leave it for four months.”
But for June, Perrins said: “ If I was sitting on the committee, I’d be voting for 0% this time around, because we are already seeing inflation coming down.”
He said the building trade had been one of the first to notice the rise in inflation, and that now conditions were easing.
“The slowdown is already happening in inflation. Our subcontractors are no longer increasing pricing on all our materials. There is little bit of higher energy still coming through the system, but effectively we are now seeing 0% inflation.”
