Interest rate rises to hit first-time house buyers, warns Cairn Homes chief

Looming interest rate increases pose a challenge to families hoping to buy their first house, Michael Stanley, chief executive of builder Cairn Homes, warned on Thursday.

House builder Cairn is poised to earn profits of €100 million this year from the sale of 1,600 homes, about 1,300 of which the company says have already been agreed.

Speaking after its annual general meeting in Dublin, Mr Stanley acknowledged that the prospect of likely interest rate rises, and more expensive mortgages, worried Cairn.

“If interest rates increase, that’s a challenge for our customers,” he said. Mr Stanley stressed that the big problem for the business was continuing to build homes at prices that average earners could afford.

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The Stock Exchange-listed company builds houses in Dublin and other centres mainly for first-time buyers.

European central bankers, including the Republic's Gabriel Makhlouf, signalled this week that they could begin hiking interest rates in July.

Such a move would increase mortgage charges in tandem with what Cairn predicts will be a likely 6 per cent rise in home building costs this year.

Mr Stanley calculated that construction inflation, which began in 2021, combined with “necessary” regulatory changes, have added up to 25 per cent to the cost of building a new home since 2015.

Cairn’s trading statement noted that infrastructure, materials and labour costs were all increasing.

The company hopes to offset labour and general cost increases through boosting efficiency.

‘Uncertain’

Its statement described the construction inflation outlook as “uncertain”, predicting that it would stay high in coming months as suppliers reacted to volatile energy prices.

Cairn pledged to work with these businesses to get competitive prices while at the same time guaranteeing security of supplies.

Demand for new homes in the opening weeks of this year was the “strongest” that Cairn had experienced to date, the company said.

It estimates that net revenue from the 1,600 homes it expects to sell this year would be more than €600 million.

Mr Stanley maintained that prices for new homes were not rising as fast as for second-hand properties.

Cairn has sold apartment blocks it built in recent years to investors who intended renting out the homes.

Its chief executive said it was in talks with State bodies, including the Land Development Agency, and housing association Tuath, about building social and affordable homes.

He suggested this could take an increased share of the company’s activity in the future.

This would be more than the 20 per cent that the law requires private developers to set aside for social and affordable housing, he added.

Institutional investors

However, Mr Stanley stressed that more than half Cairn’s business would remain focused on first-time buyers, while it would continue to deal with institutional investors seeking apartment developments.

He argued that proposals, in local council development plans in Dublin and elsewhere, to limit new build-to-rent projects were based on flawed census figures.

"If local politicians, voted for by people who already own homes, want to continue to set targets, which are unrealistic, that will impact on the delivery of homes in Ireland, " Mr Stanley warned.

Cairn has upped wages in line with forecasted cost of living increases, according to its statement. It has also doubled participation in its long-term incentive share scheme across all levels within the business.

The company expects to return €115 million to investors through ordinary dividends and share buy backs this year.