Taylor Wimpey warns that the housing market is being adversely affected by the increasing interest rates.

 

The housebuilder reports a decline in sales, attributing it to the Bank of England's stance, which has resulted in homes becoming less affordable.

One of the major housebuilders in Britain, Taylor Wimpey, has issued a warning about the impact of the Bank of England's interest rate increases aimed at curbing high inflation. These rate rises have had a detrimental effect on the housing market and have made homes less affordable, resulting in a sales slump.

During the six months leading up to July 2nd, the company's revenue saw a significant decline of 21%, totaling £1.6 billion, which subsequently affected pre-tax profit, decreasing by 29% to £237.7 million. Despite this, the average selling price of homes increased by 6.7% to £320,000.

In July, Taylor Wimpey experienced a decline in its net sales rate for private homes, dropping to 0.47 outlet per week from 0.57 the previous year. Additionally, the cancellation rate rose to 24% from 19%, indicating that more customers chose to withdraw from their purchase deals.

Jennie Daly, the Chief Executive, stated: "The rising mortgage costs are affecting affordability for our customers, but we still observe robust underlying interest. Nonetheless, reservations are currently below the levels we have seen in recent years."

According to Jennie Daly, the Chief Executive of Taylor Wimpey, the year 2023 began positively, with demand in the typically strong spring selling season recovering from the low levels experienced at the end of the previous year. Additionally, mortgage rates have decreased from the highs observed in late 2022 when the government's mini-budget led to turmoil in the mortgage market.

However, market conditions weakened in the second quarter due to the Bank of England's response to higher-than-expected inflation. In June, the base rate was increased from 4.5% to 5%, leading to higher mortgage costs towards the end of the first half of the year.

Nationwide building society also reported a decline in UK house prices, with the fastest annual rate drop in 14 years last month. Higher interest rates have hindered people's ability to buy properties with mortgages, and economists anticipate further decline in the market for the rest of the year.

Taylor Wimpey's order book showed 7,866 homes worth £2.1 billion in early July, excluding joint ventures, compared to 10,102 homes worth £2.8 billion at the same time last year. The company completed 5,120 homes in the first half of this year, a decrease from 6,922 homes completed in the previous year.

On a positive note, the rate of material and labor cost inflation has eased. Build cost inflation on new tenders has reduced to about 6%, down from 9% to 10% at the beginning of the year. Taylor Wimpey expects this trend to continue decreasing over the coming months.

The company projects completing between 10,000 and 10,500 homes this year, excluding joint ventures, and expects to achieve an operating profit of £440m to £470m, which is approximately half of last year's £923m.

Jennie Daly also expressed concerns about the challenging nature of the planning systems, which are likely to impact housebuilding throughout the industry.

The Bank of England is anticipated to raise interest rates again on Thursday, with money markets predicting a quarter-point increase to 5.25%.

The TUC (Trade Union Congress) has urged the Bank to halt the interest rate increases, citing widespread job losses in recent months, which have left the UK at risk of falling into a recession.