Britain’s largest homebuilder Barratt Developments warned it would build far fewer homes this fiscal year as rising mortgage rates and stubborn inflation hit demand, sending its shares down more than 5% in early trading on Thursday.
The FTSE 100-listed firm said it expected to build between 13,250 to 14,250 units in the year ending June 30, 2024, down from 17,206 homes the year before. Delivering at the mid-point of the range would mark a drop of 20%.
Britain’s housing market has been hit by rapid increases in interest rates, which analysts think could rise to 6.25% by the end of this year from 5% now, putting renewed pressure on homeowners and buyers. Average two-year fixed mortgage rates hit a 15-year high earlier this week.
Barratt, which flagged significant macro-economic headwinds from persistent inflation and higher interest rates, said reservations slowed beyond the normal seasonal trends from mid-May to the end of June.
The rate of weekly bookings per Barratt site in the 2023 financial year stood at 0.55, down 32.1% year-on-year while first time buyer bookings slumped 49%.
Shares in the FTSE 100 builder fell as much as 5.3% to 396 pence, their lowest level since Dec. 21, 2022, and the stock was the top percentage loser on the blue-chip index.
Julie Palmer, partner at Begbies Traynor, said Thursday’s trading update underlined the impact of rising rates on homebuyers, construction firms and other businesses linked to the housing market.
Homebuilders typically revise their home-building targets to match existing demand levels.
High-end housebuilder Berkeley last month forecast a 20% drop in house build sales for its current fiscal year.
Barratt’s forward sales position – a key metric gauging the housing demand – declined to 2.22 billion pounds ($2.89 billion)as at June 30, compared with 3.62 billion pounds a year ago.
The group expects adjusted profit before tax for fiscal 2023 to be in line with current market expectations.