Foxtons is expecting the housing market during the first half of this year to be “more challenging” for the business compared with the same period last year with a more subdued sales market as a result of higher interest rates and general economic uncertainty, as well as inflationary pressures. But the firm says that its letting revenues is expected to remain resilient despite these headwinds.
Whilst the group is cautious about the sales market outlook, Foxtons says the steady reduction in mortgage rates from the elevated levels seen immediately after the mini-budget is encouraging and may lead to more favourable markets as the year progresses.
The company has confirmed that an operational review of the group is nearing completion covering all aspects of the business, resulting in a plan focused on driving growth and rebuilding Foxtons’ estate agency DNA. This will require investment in brand and people, including ensuring sufficient headcount capacity across our branch network, and the ability to better leverage our data and technology. Cost action already taken, alongside continued disciplined cost control, will self-fund the majority of this investment.
2022 trading review
Letting, sales and financial services all delivered revenue growth in 2022, with group revenue ahead of market expectations at c.£140m (up c.11% year-on-year). Adjusted operating profit is also ahead of market expectations.
In February 2022, the group successfully integrated the Douglas & Gordon Lettings portfolio and disposed of the loss-making Sales business, delivering significant earnings growth. Following this, in May 2022, the group acquired two further letting portfolios, adding c.2,500 tenancies. The group will continue to target further acquisition opportunities as part of its strategy to deliver attractive total returns on invested capital and improve the resilience of its revenues.
Details of the operational review and outcomes will be presented alongside the 2022 full year results on 7 March 2023.
Foxtons CEO, Guy Gittins, said: “Much has been achieved in a short period and it is great to see some of the team’s hard work reflected in the 2022 results. The economic outlook for the year ahead remains uncertain, but we have a growing portfolio of non-cyclical revenues, and a refreshed operational strategy to rebuild Foxtons’ estate agency DNA and return the business to its position as London’s go to estate agency.”
The current outlook for house prices is somewhat bleak; after several years of growth, the market is slowing for several reasons, predominantly rising borrowing costs.
I think this is likely to continue throughout 2023.
While this is not great news for buyers who bought in the last few years, it could be better news for people looking to buy in the next twelve to eighteen months.
While some analysts predict prices could fall by as much as 30%, any forecasts should be taken with caution. The Office for National Statistics state that prices have risen 28% since April 2020. Therefore, if prices fall by 30%, the average house price will be at a level last seen in 2016. On the other hand, if they drop 20%, they will be about the same as they were just before the pandemic.
While supply and demand are significant factors, interest rates are important. The base rate of the BoE has jumped from 0.1% to 3.5%, which will impact house prices as some buyers will have to re-examine what they can afford. The time of cheap money is well and truly over.
A big issue, nevertheless, will be existing homebuyers coming off their fixed rates mortgages and seeing higher monthly repayments. While some borrowers will be able to afford these increases, some won’t. Easy and cheap money, which many thought would be endlessly available, has led to some people making unwise and poor investments. It is inevitable that when interest rates rise to combat inflation, this will affect what people can afford to borrow, impacting where prices are heading. However, while the better quality property may be less affected than some, everyone will feel the chill.
Agents must stop talking the market up if they want to be taken seriously. Instead, vendors should be given honest advice about the market and what their homes are worth, and there should be no place for agents who overvalue to obtain instructions. I find it alarming to see the number of properties which have been on the market for over twelve months. The last real crash in the property market was in 2008, some fifteen years ago. Most negotiators and many branch managers under the age of thirty-five have never seen a tough market. Many offices have already closed around us, and the level of available overpriced stock keeps rising.
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