London-focused housebuilder Berkeley Group has issued a stark warning that escalating conflict in the Middle East, particularly involving Iran, could significantly impact the UK housing market. The company highlighted that such geopolitical tensions might drive inflation higher and keep interest rates elevated for an extended period.
Geopolitical Uncertainty Weighs on Consumer Confidence
Berkeley, which specialises in building homes in London, Birmingham, and southern England, reported that trading in recent months has been "constrained by the impact on consumer confidence of geopolitical events and macro-economic uncertainty". The emerging situation in the Middle East is "weighing heavily on risk sentiment", according to the firm.
Inflation and Interest Rate Concerns
The company expressed caution over the potential for higher inflation this year, which could result in interest rates remaining higher for longer. This concern aligns with warnings from the Office for Budget Responsibility (OBR), the Government's official forecaster. The OBR has indicated that if energy prices stay at their current elevated levels, UK inflation could increase by one percentage point this year.
Mortgage Rates on the Rise
Average mortgage rates have already surpassed the 5% mark as lenders scramble to hike their rates, according to data from Moneyfactscompare.co.uk. Major UK lenders, including HSBC UK, Barclays, Santander, Halifax, and Lloyds, have increased mortgage rates this week, with further hikes potentially on the horizon.
Resilience in New Home Sales
Despite these challenges, Berkeley noted that sales inquiries for new homes remain robust. The value of reservations has been recovering towards levels seen over the summer, prior to a pre-autumn budget lull in demand. The company remains optimistic about its financial outlook, expecting to achieve a pre-tax profit of £450 million for the latest financial year and similar results in the year ahead, with no changes to previous guidance.
Long-Term Positive Outlook for London
Berkeley also heralded a "positive" long-term outlook for the London housing market, emphasising the city's "resilience". The current market volatility presents a good opportunity for customers with liquidity to make purchases, according to the company.
The remarks from Berkeley underscore the interconnectedness of global events and domestic economic factors, highlighting how Middle East tensions could ripple through the UK housing sector and broader economy.
