Profits warning signals housing market danger

Bovis. one of Britain’s leading new housebuilders, is experiencing a significant downturn in demand, which is blaming on high interest rates and the “credit crunch”.

News from the Press Association this morning that housebuilder Bovis Homes have called for “decisive action” on interest rates after revealing a 20% drop in sales reservations so far this year.

Without cheaper borrowing costs and more normal conditions in the mortgage market, Bovis said volumes in 2008 were likely to be well down on last year.

Bovis said: “2007 was a challenging year for the industry following several interest rate increases, allied with a reduction in availability of funding, particularly for first-time buyers.”

Chief executive Malcolm Harris said:

“For the year as a whole, unless decisive action is taken now to reduce interest rates and more normal conditions return to the mortgage market, it is likely that volumes will be well below those achieved in 2007.”

Last Thursday the Bank of England’s monetary policy committee voted to leave interest rates unchanged at 5.25%, having made quarter-point cuts in December and February. Analysts expect another cut to 5% within the next few months.

Of course, housebuilders aren’t the only businesses calling for a reduction in interest rates. However, it is easy to see why they are so keen to see the base rate fall. There seems to be plenty of evidence that housebuyers in the UK are becoming increasingly cautious about economic conditions. High mortgage repayments have to come out of disposable income and until either house prices start to fall, or interest rates are lowered, the affordability of new home ownership may continue to look unattractive to many.