One of the UK’s biggest housebuilders has revealed that demand is falling rapidly as buyers react to higher mortgage rates and the prospect of a recession.
In an update on Wednesday, Taylor Wimpey said that over the past five months it has been selling homes at around half the pace it was in the first half of the year.
In another worrying sign for the sector, the number of Taylor Wimpey homebuyers cancelling purchases ahead of completion has jumped by more than 50 per cent. Just under a quarter of purchases have been cancelled in the second half of the year so far, up from 15 per cent in the first half.
Taylor Wimpey still anticipates that operating profits for the full year will be in line with previous guidance, at around £930mn, but it is nonetheless bracing for a tough period.
“We’re operating in a challenging economic and political backdrop, and the sector is not immune,” said Jenni Daly, the FTSE 100 group’s chief executive.
Higher mortgage rates after former chancellor Kwasi Kwarteng’s “mini” Budget in September have left people “re-evaluating their ability to buy” and average sales prices have plateaued after a period of strong growth, she added.
The pace of sales could slow further, warned Investec analyst Aynsley Lammin, because people who are completing purchases at the moment would generally have cheaper mortgages that were agreed before the Budget, whereas those starting the process now would have to pay much higher rates.
“The key issue will be that if the sales rate remains so slow into the spring selling season then pricing will start to be hit,” he said.
Taylor Wimpey is also grappling with build cost inflation of 9-10 per cent. Meanwhile, new levies and the need to meet higher environmental standards in construction could add £4.5bn in annual expenses to the sector, according to the developers’ trade body.
Some are hoping for reassurance from the new chancellor, Jeremy Hunt, in his first budget next week.
“After the last couple of months, I’d say our customers are concerned about the Budget. Why wouldn’t you wait a couple weeks and see what the chancellor has to offer you?” said Daly.
But Lammin said it was unlikely that Hunt’s statement could reverse the rise in mortgage rates, or prevent the economy from tipping into recession.
“It’s tough out there. Sales rates have tumbled and we’re in a new market,” he said.
Shares in Taylor Wimpey were flat on Wednesday at 98p, and have fallen around 45 per cent in the year to date.