Berkeley share price slides 5pc despite stellar results

Berkeley Group, the London-focused housebuilder, posted a 40pc jump in full-year profits helped by the booming housing market in London.

Pre-tax profits in the year to the end of April increased to £380m, up from £271m last year, on an 18pc rise in revenue to £1.62bn.

The company has been able to ride the rising demand for houses in London by increasing supply. It completed 3,742 new homes in the year - 30pc more than at the peak of the market in 2007 - and has built around 10pc of all new homes in London over the past five years.

Tony Pidgley, the founder and chairman of Berkeley, said: "Looking to the future, the housebuilding industry, supported by the stimulus of the Help to Buy scheme, has the capacity to increase further the supply of new homes across the country."

He said housebuilders have been buoyed by growing confidence in the UK economy and stressed the importance of the Capital and investment if the sector was to continue to economic growth.

"London in particular competes on a global stage and the strength of the market here is vitally important for maintaining momentum in the wider domestic market," he said, adding that Berkeley employs more than 11,000 people directly and sustains a further 10,000 jobs indirectly in the supply chain.

However, the share price slid nearly 5pc in morning trading following yesterday's announcement from Mark Carney that the Bank of England will not hesitate to act to cool Britain's housing market. He has also indicated that rate rises may come in earlier than anticipated. As a result Berkeley shares fell from 22.90p to 21.51p before midday.

"Berkeley itself as ever is in fine fettle but recent warnings on monetary policy such as talk of rate rises for the first time since 2011 has had an impact on share price," said Martyn King, analyst at Edison Research.

UBS also warned that Berkeley is very exposed to London house prices, and early indications show a cooling in values and drop in buyer demand, although the Capital's need for supply should reassure shareholders in the long term.

The company said prices for its properties had increased in line with the market. On Tuesday the ONS said property prices in London rose 18.7pc over the last year - the largest annual increase in house price growth since 2007.

Berkeley said Help to Buy had aided sentiment in the housing market but had limited benefit to the company due to the proportion of its sales which are off-plan. On the 17 schemes where qualifying properties were available, it has supported some 36pc of sales in the year, a total of 159 sales over the last twelve months.

Mr Pidgley, while confident about the long-term, said the company was alert to the "cyclical nature of the property market and the uncertainty surrounding future tax policy and political decision-making".

"Monetary policy and the financial stability of banks, which is currently a concern of regulators, are both factors influencing the housing market in the long-term. Provided any future increases in interest rates or regulation of mortgages are matched with future wages growth as the economy expands, the prospects for the housing market remain positive," he said.

Despites the growing recovery, wage growth has remained below inflation over the past five year putting a squeeze on household income.