Demand for new-build housing is cooling fast with economic turmoil and higher borrowing costs putting the brakes on the property market, the UK’s largest housebuilder has said.
Barratt Developments said in a trading update on Wednesday that buyers were reserving an average of 188 homes per week, compared with 281 in the past financial year.
Demand is markedly slower than in each of the past three years, it added, reflecting “increased wider economic uncertainty, where growing cost of living concerns have been compounded by increased mortgage interest rates and reduced mortgage availability”. It has lowered its profit estimates in response.
The company, which is also grappling with build cost inflation of 9-10 per cent, said it now expected adjusted pre-tax profits of £972.5mn for the full year, in line with analysts’ estimates but down on previous guidance and lower than the £1.05bn recorded last year.
Chief executive David Thomas said the slowing pace of sales was a clear sign of customers reacting to wider economic uncertainty.
Since chancellor Kwasi Kwarteng’s “mini” Budget last month, mortgage rates have risen sharply, with the cost of a two-year fixed-rate loan now about 6 per cent.
Citing mortgage rates as vital to the health of the housing market, Barratt said the outlook was uncertain. As a result, it is being “increasingly selective” when buying land — an indicator that the pace of development is also likely to slow.
“It remains too early for much clarity on what the downturn looks like,” said Glynis Johnson, an analyst at Jefferies, in a note. “But retrenching in land buying, although yet to be followed by build, will be important for cash preservation.”
Chris Millington, an analyst at Numis, said the update signalled that “the “mini” Budget is starting to have an impact. It’s inevitable really.”
The slowdown in demand was likely to hit harder next year if there was no change in the mortgage market, added Millington. “The longer the lower sales rate persists it will eat into [Barratt’s] order book next year,” he said.
Rising mortgage rates and cooling demand add to a list of challenges for housebuilders. Build costs have risen with inflation, affecting demand and margins and hitting share prices across the sector.
Shares in Barratt fell more than 7 per cent after the update on Wednesday, taking year to date falls to nearly 60 per cent. Rivals like Taylor Wimpey and Persimmon are also down between 50 and 60 per cent this year.
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