One of Britain’s biggest housebuilders, Taylor Wimpey, has warned that the Bank of England’s rate rises to tame high inflation have weakened the housing market and made homes less affordable after a sales slump.
Revenue fell 21% to £1.6bn in the six months to 2 July, dragging pre-tax profit down 29% to £237.7m. Its average selling price rose 6.7% to £320,000.
In July, the builder’s net sales rate for private homes dropped to 0.47 an outlet per week, compared with 0.57 last year, while the cancellation rate rose to 24% from 19% as more customers pulled out of deals.
Jennie Daly, the chief executive, said: “While increased mortgage costs are impacting affordability for our customers, we continue to see strong underlying interest. However, reservations are below the levels we have experienced in recent years.”
She said 2023 had started well, with demand in the traditionally strong spring selling season recovering from the low levels seen late last year and with mortgage rates coming down from the highs of late 2022, when the Liz Truss government’s disastrous mini-budget sparked turmoil in the mortgage market.
“However, market conditions weakened in the second quarter as the Bank of England responded to higher than expected inflation by increasing the base rate from 4.5% to 5% in June, which drove an increase in the cost of mortgages towards the end of the half,” Daly said.
On Tuesday, Nationwide building society reported that UK house prices fell at the fastest annual rate in 14 years last month, as higher interest rates hindered people’s ability to buy a property with a mortgage. Economists are expecting the market to decline further this year.
Taylor Wimpey’s order book contained 7,866 homes worth £2.1bn, excluding joint ventures, in early July compared with 10,102 homes worth £2.8bn at the same time last year.
The group completed 5,120 homes in the first half of this year, down from 6,922 a year earlier.
On a brighter note, the rate of material and labour cost inflation has eased, with build cost inflation on new tenders now about 6% compared with 9% to 10% at the start of the year. Taylor Wimpey expects this to reduce further over the coming months.
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The company expects to complete between 10,000 and 10,500 homes this year, excluding joint ventures, and to make an operating profit of £440m to £470m including joint ventures – about half of last year’s £923m.
Daly also warned that the planning systems remained “extremely challenging” and would affect housebuilding across the industry.
The Bank of England is expected to raise interest rates again on Thursday, with the money markets predicting a quarter-point rise to 5.25%.
The TUC has urged the Bank to call a halt to interest rate increases, warning that widespread job losses in recent months had left the UK “teetering on the brink of recession”.
