A “sharp and sudden” slowdown in the housing market triggered a dramatic profit warning from estate agent Foxtons yesterday and sent investors scurrying to ditch shares in its listed rivals.
Foxtons’ gloomy update on a slowing London property scene, accompanying its results for the July to September quarter, means it will miss profit forecasts badly. Shares in the company, which floated in September last year making millionaires of a host of staff, crashed 19.6 per cent to a new low of 165p – well below the 230p flotation price.
The agent, known for its fleet of Minis and its aggressive sales tactics, said there had been a “sharp and sudden slowing of volumes in London property sales… following an exceptionally strong nine months to June”.
The warning came as the British Bankers’ Association said mortgage lending fell by 10 per cent in September and rival agent Marsh & Parsons reported the slowest price growth in the capital’s most expensive homes for more than three years.
In June the Bank of England introduced measures to curb high-risk lending – particularly advances by banks at more than four and a half times a borrower’s income. Lenders also have to make more detailed checks on borrowers’ ability to pay following the introduction of the City watchdog’s Mortgage Market Review (MMR). Foxtons’ stock market woes soon spread to its rivals as the UK’s biggest agent, Countrywide, sank 4 per cent, and the Reeds Rains and Your Move owner LSL Property Services slid 0.3 per cent. The gloom spread to the online property site Zoopla, whose shares were down 2 per cent.
Foxtons’ turnover for the three months dropped from £41.1m to £39.9m, and commissions on sales fell 8 per cent to £16.4m as a drop in completions outstripped rises in property prices. Foxtons said: “External headwinds have exacerbated the rate of slowdown in sales transactions. Market volumes in the third quarter have been more in line with the first half of 2013 and we now believe second-half volumes will be significantly below last year’s.”
Analysts rushed to cut their forecasts after it said its headline earnings this year would be below last year’s £49.6m.
Until yesterday the average forecast had been for earnings to rise 13 per cent to £57m. Chris Millington, an analyst with Numis, cut his forecast to £47m. He said: “The deterioration in market conditions reflects the reduction in buyer demand, which seems to be driven by high asking prices, uncertainty ahead of the election and some impact from the MMR.”
The private equity firm BC Partners bought Foxtons for £390m in 2007, just before the crash. The business later had to be financially restructured but BC has got back over three times its investment.