LSL Property Services warns on profit as rising interest rates hit homebuying

LSL Property Services has warned annual profits will be substantially lower than previously forecast as rising interest rates hit mortgage lending and homebuying.

The group, which owns estate agents Your Move and Reeds Rains as well as mortgage adviser Primis, said that the ‘larger than expected interest rate increase’ by the Bank of England in June had a ‘material impact on the mortgage market’.

LSL expects revenue in the six months to the end of June to have dropped to around £104million, from £160.9million in the previous year, with underlying operating profit falling to £3.5million, from £14.2million.

The Newcastle-based company, which also provides advisory services to mortgage brokers, said it expected lower levels of mortgage lending and remortgaging than previously forecast for the rest of the year.

This change in the mortgage market will impact its surveying division further, as more borrowers stick with their existing lenders, which means no need for property valuation services.

While valuation instructions by lenders had been building up steadily in the first half, they tumbled by around 40 per cent in recent weeks to ‘levels substantially below historic norms’, LSL told shareholders.

Chief executive, David Stewart, said: ‘Market conditions have been challenging, and more recently have become more difficult, impacting this year’s financial performance.’

In the first half, mortgage lending fell by 27 per cent, while remortgaging decreased by 15 per cent, though both declines were less acute than those seen across the market.

‘Whilst this change in the nature and volume of mortgage lending was largely included in our expectations for H1, the most recent trading following the June interest rate rise indicates that this shift has increased further and we now expect these conditions to persist in H2, with a resulting impact on margins and full year profit,’ LSL told shareholders. 

The profit warning sent LSL Property Services shares falling as much as 14 per cent on Monday morning, before they recouped some losses to trade down 11 per cent to 250p.

The housing market is in the middle of a slowdown, as high mortgage costs and tight credit conditions eat into demand. 

The Bank of England has raised interest rates by 0.25 percentage points to 5.25 per cent last week in a bid to bring down inflation. 

The decision marks the bank’s 14th base rate hike since December 2021. Base rate is now at its highest level since February 2008, when it also stood at 5.25 per cent.

House prices have fallen for the fourth consecutive month, according to the mortgage lender Halifax.

However, the lender also said the market was displaying resilience with industry data showing increased activity.