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, forcing some homebuyers to take on longer mortgages to cope with higher borrowing costs.
The company said the share of its first-time buyers who were taking on mortgages of more than 36 years had more than tripled since 2021 to 27%. For second-time buyers, 42% were taking out mortgages longer than 30 years, up from 28% in 2021.
Jennie Daly, the chief executive, said the data, from an independent financial adviser, was based on a small sample of buyers. “It does give a direction of travel, and it does demonstrate how our customers and the lenders are adapting to this more challenging environment.”
She said there was some concern that longer-term mortgages could affect retirement savings but added: “What tends to happen … is that customers would seek to reduce the mortgage term as the mortgage environment improves, as their wages and economic standing improve.”
In July, the start of a quieter period, 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.
The firm’s revenues fell by 21% to £1.6bn in the six months to 2 July, dragging pre-tax profit down by 29% to £237.7m. Its average selling price rose 6.7% to £320,000.
However, Taylor Wimpey shares rose 3.2% on Wednesday as it completed 5,120 homes in the first half, more than expected but down from 6,922 a year earlier, and stuck to its full-year outlook.
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 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.
However, market conditions weakened between April and June as the Bank of England raised its base rate to 5%, with another increase expected on Thursday to 5.25%. The average two-year fixed residential mortgage rate is 6.85%, while the five-year rate is 6.37%, according to Moneyfacts.
On Tuesday, Nationwide building society reported that UK house prices fell at the fastest annual rate in 14 years last month. Economists are expecting the market to decline further this year.
Taylor Wimpey’s 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. It expects this to reduce further over the coming months.
Daly warned that the planning systems remained “extremely challenging” and would affect housebuilding across the industry, with local authority planning resources more than halving since 2010.
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”.
Andy Murphy, a director at the investment research firm Edison Group, said: “This update from Taylor Wimpey constitutes a clear case of ‘it could have been worse’, as a weakening property market and high operational costs have combined to put huge pressure on the construction sector during the first half …
“While not currently translating to strong market demand, the fact remains that Britain needs new homes and will continue to need new homes when mortgage rates stabilise.”
