(Reuters) - Britain’s third-largest homebuilder Taylor Wimpey warned on Thursday the rising cost of building materials would weigh on profit margins this year, hitting shares across the sector.
It said costs had risen more than expected early this year due to surprisingly high demand for materials amid a buildup of buffer stocks in the industry on political uncertainty related partly to Britain’s decision to leave the European Union. Foreign exchange fluctuations had also hit suppliers’ cost base.
Taylor Wimpey now expects building costs to rise about 5 percent in 2019 versus a previous 3-4 percent forecast.
“The cost pressures are more from the political uncertainty than the economic uncertainty,” Chief Executive Officer Pete Redfern told Reuters. “We do see costs being a 2019 issue because of these particularly short-term pressures.”
Taylor Wimpey’s shares fell 7.6 percent to 177.7 pence, pushing them to the bottom of London’s blue chip index and dragging down rivals Persimmon Plc, Barratt Development Plc and Berkeley.
“We believe the unexpected step-up in build cost may unnerve investors,” Jeffries analysts said, adding: “...we don’t see TW (Taylor Wimpey)as expensive but post this update the share price may lack momentum near-term.”
Midcap builders Bovis Homes, Crest Nicholson, Redrow and Bellway were also about 4 percent to 6 percent lower on Thursday.
The country’s housing market has weakened since the June 2016 Brexit vote, led by price falls in London. At the time of the referendum, house prices were rising by about 5 percent a year.
Still, Taylor Wimpey said it expected to sell slightly more homes in 2019, countering the overall sluggish housing market.
The FTSE 100 company said the market for new houses had been stable in the first four months of 2019, as more people were able to get mortgages in a low interest rate environment, combined with high employment.
It added that trading through the spring selling season had been good, with customers more confident of buying a house despite the political uncertainty.
The company said its total order book value stood at about 2.39 billion pounds for the week ended April 21.
Reporting by Samantha Machado and Noor Zainab Hussain in Bengaluru; Editing by Bernard Orr and Emelia Sithole-Matarise