Property services company LSL has issued a profit warning after saying that interest rate rises had impacted the housing market more than it had expected.
In a trading update for the first six months of the year, the Newcastle-based company said it had made ‘significant strategic progress’ on its strategy to simplify the group, which contains estate agency, surveying and financial services divisions. But it said that results in its first half were impacted by significant changes in the housing market, with underlying operating profit falling to £3.5m compared to £14.2m in the same period of last year.
And it added that its expectations that those changes would ease in the rest of the year had been hit by the higher-than-expected rise in interest rates in June, which was reducing housing sales and encouraging people to switch mortgage deals with their existing provider rather than switching to other banks.
Read more: Newcastle Building Society highlights difficult times for customers
LSL said those conditions would “significantly impact second half group profits” which were now likely to be lower than its previous expectations. Comparable revenue - adjusting for the impact of franchising and disposals in 2022 - was around 20% down.
Group CEO David Stewart said: “LSL made a lot of progress over the past six months, delivering important strategic projects. Market conditions have been challenging, and more recently have become more difficult, impacting this year’s financial performance.
“The more challenging market conditions in the short-term will not prevent us from continuing to take the required steps to deliver on the identified opportunities for future growth. Our strong balance sheet allows us to take a long-term view and we will continue to invest to deliver our financial services network growth strategy and retain the capacity required to enable our surveying business to meet the future demands of our clients.
“Our financial services network and surveying businesses have established leading market positions and have performed strongly in recent years and will perform more strongly when the market recovers. Notwithstanding the near-term challenges the board remains confident about the group’s medium-term prospects.”
Most Read
LSL is working through a strategy to simplify its business model in a bid to protect itself from housing market cycles. The owner of the Reeds Rains and Your Move brands earlier this year announced that it was moving to franchise its network of 183 estate agent branches a part of that process.
In today’s trading update, it said it had completed the last franchising contracts on its estate agency network. The company’s core financial services network gained market share but saw volumes fall in the purchase lending and remortgaging sectors.
And it said the impact of the challenging conditions in the housing market was most pronounced in its surveying division, where instructions fell 27% year-on-year. The company said it would retain “material excess staff costs” in the short term so that it could take advantage when the housing market returned to more normal conditions.
LSL said that its total revenue was around £104m, down from £160.9m a year earlier, though its costs had significantly reduced too.