Britain’s largest housebuilder, Barratt Developments, has introduced a hiring freeze and is “significantly” cutting back on buying land as it steels itself for a further slump in the UK housing market.
Barratt said it was responding to a “marked slowdown” in the UK housing market after a rise in interest rates that had made mortgages more expensive for prospective homebuyers.
The company said the average weekly net number of private reservations of properties fell in the second half of last year, down from 259 to 155.
It was also forced to scrap building plans for 3,293 land plots, cancelling out the 3,003 plots that proceeded with construction. The net cancellation of 290 plots compares with the net addition of 8,869 a year earlier.
“The first half of the financial year has … seen a marked slowdown in the UK housing market,” said Barratt’s chief executive, David Thomas.
“Political and economic uncertainty impacted the first quarter; this was then compounded by rapid and significant changes in mortgage rates, which reduced affordability, homebuyer confidence and reservation activity through the second quarter.”
Barratt is warning that the outlook for the first half of 2023 is “uncertain”, adding that the health of the UK housing market would depend on homebuyer confidence and the availability of competitively priced mortgages.
Lenders have increased mortgage borrowing costs in response to rising UK interest rates, which have increased nine times in the past year. Lenders raised mortgage rates even further in the wake of the government’s disastrous mini-budget in September, as the resulting market turmoil led some lenders to pull their mortgages off the shelf, while others raised the costs of borrowing in response to the uncertainty.
The turmoil has increased costs for those needing to remortgage their homes, and depressed appetite among homebuyers, with the latter pushing down house prices across the UK.
Halifax, which is part of Lloyds Banking Group, the UK’s biggest high street bank, reported last week that the average UK house price had fallen for the fourth month in a row in December.
Last month, the lender predicted that rising interest rates as well as the broader cost of living crisis would dampen house prices by about 8% over the course of 2023.
Soaring interest rates have already had an impact on the construction sector, which contracted in December as housebuilders took on fewer projects.
However, Barratt said the group was still in a strong financial position. “This provides us with a robust platform and gives us flexibility to continue to respond to market conditions as they evolve throughout the coming year,” the company said.