Housebuilder Barratt Developments has warned it will build far fewer homes as rising mortgage rates and inflation hit demand.
Barratt, the UK’s largest homebuilder, said it expected to construct between 13,250 and 14,250 units in the year ending 30 June 2024, down from 17,206 homes the year before. It said buyer reservations had slowed from mid-May to the end of June.
Its forward sales position – a key measure of housing demand – declined to £2.22bn at the end of June, compared with £3.62bn one year ago.
The housing market is being hit by surging mortgage costs, with average two-year fixed mortgage rates jumping to a 15-year high of 6.7 per cent earlier this week as interest rates rise to combat high inflation.
First-time buyer demand has been impacted the most, it added, plunging 49 per cent year-on-year due to the ending of the Help to Buy scheme and soaring mortgage rates.
The firm’s chief executive, David Thomas, said: “The trading backdrop has become more challenging in recent months, with many of our customers facing significant cost of living pressures.” The company completed 17,206 homes in 2023, down 4 per cent on 2022.
Barratt also said it saw a drop-off in demand for new homes in the wake of former prime minister Liz Truss’s mini-Budget in September, which sent mortgage rates rocketing. It added that it expected building costs to halve from 10 to 5 per cent as energy and raw material costs reduced.
Further evidence of a slowdown came as property surveyors said there were reports of a fall in new buyer enquiries last month.
A drop in the number of buyers marked “a renewed deterioration in UK home sales”, according to the Royal Institution of Chartered Surveyors (Rics), which carried out the closely watched survey last month. All parts of the UK reported a “negative trend in buyer enquiries compared with May”, it said.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said house-buying activity levels were likely to remain subdued.
“The latest increase in interest rates and the impact this has had on mortgage rates is clearly visible in… buyer enquiries, sales and prices, which have all retreated over the past month,” he said.