Demand for new-build homes cooling fast, says Barratt

Demand for new-build housing is cooling fast as economic turmoil and higher borrowing costs weigh on the property market, according to the UK’s largest housebuilder, which has lowered its profit estimates in response.

Barratt Developments said on Wednesday that buyers were reserving an average of 188 homes per week, compared with 281 in the past financial year.

The pace of demand is markedly slower than in each of the last three years, added the company, reflecting “increased wider economic uncertainty, where growing cost of living concerns have been compounded by increased mortgage interest rates and reduced mortgage availability”.

Barratt, which is also grappling with build cost inflation of 9-10 per cent, said it was expecting to record adjusted pre-tax profits of £972.5mn for the full year, in line with analysts’ estimates but down on previous guidance and lower than the £1.05bn recorded last year.

Chief executive David Thomas said the slowing pace of sales was a clear sign of customers reacting to wider economic uncertainty.

Since chancellor Kwasi Kwarteng’s “mini” Budget last month, mortgage rates have spiked, with the cost of two-year fixed-rate loans rising to about 6 per cent.

There are signs that is already choking demand for housing.

Citing mortgage rates as vital to the health of the housing market, Barratt said the outlook was uncertain. As a result, the company is being “increasingly selective” when buying land — an indicator that the pace of new development is likely to slow.

“It remains too early for much clarity on what the downturn looks like,” said Glynis Johnson, an analyst at Jefferies, in a note. “But retrenching in land buying, although yet to be followed by build, will be important for cash preservation.”