The sharp increase in the cost of a mortgage is triggering a slump in demand for new homes, according to three of Britain’s biggest homebuilders.
(Bloomberg) — The sharp increase in the cost of a mortgage is triggering a slump in demand for new homes, according to three of Britain’s biggest homebuilders.
Taylor Wimpey Plc, Persimmon Plc and Barratt Developments Plc, a trio which collectively built more than 45,000 homes last year, all warned this week that demand for new houses is tumbling and hinted at more disruption for the market in 2023.
A key measure of sales – the weekly reservation rate – has plunged at all three firms in the last few months as buyers adapt to high mortgage rates that are threatening to trigger a slump in house prices. Over 800,000 households will see their mortgage rates more than double in 2023 as they come off fixed-rate deals, according to an Office for National Statistics analysis of Bank of England data.
Taylor Wimpey saw its weekly net private reservation rate drop to 0.48 in the second half of 2022, compared with 0.85 in the same period a year earlier. Barratt said its rate fell to 0.3 from 0.69 in the same period, while Persimmon saw its rate drop to 0.3 in the fourth quarter of the year, compared with 0.77 in the same period a year earlier.
As a consequence, Barratt said it had reduced land approvals, paused recruitment and warned it may build fewer homes in 2023. Persimmon and Taylor Wimpey also said they were cutting back on land purchases this year and would be highly selective with any investments.
Still, housebuilders have seen their share prices rise this week, even after their gloomy trading updates. Liberum Capital Ltd last week predicted a rally for beaten-down homebuilder stocks this year, with analyst Charlie Campbell forecasting only a “mild” decline in house prices.
“The long-term fundamentals for the UK housing market remain compelling,” said Anthony Codling, a former Jefferies housing analyst who now runs property website Twindig. Though, “it is too early to say when or if the market will recover in 2023,” he added.
–With assistance from Jack Sidders.
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