UK Housebuilders Face Challenges as Home Sales Slide

Shares of U.K. housebuilders faced a decline in the London market on Wednesday, as the largest company in the sector reported a significant drop in home sales. The slide in sales can be attributed to surging mortgage costs, which have deterred potential buyers.

Barratt Developments, the leading company in the sector, revealed that its average weekly private net sales rate for July and most of August stood at 0.42. This figure is notably lower than the rate of 0.65 recorded for the previous financial year, which ended in April.

CEO David Thomas highlighted the challenges faced by customers, stating, "Customers continue to face cost of living and mortgage affordability challenges... We expect that the backdrop will continue to be difficult over the coming months."

The housing market in Britain has been struggling in recent months due to rising interest rates aimed at dampening inflation. Last year, inflation reached a multi-decade double-digit high. The mortgage rate provided by the British Bankers' Association rose from approximately 3.6% at the end of 2021 to 7.7% in July 2023.

Nationwide, a prominent mortgage lender, reported a 3.8% decline in U.K. house prices in the year leading up to July. This marks the fastest pace of decline since the global financial crisis in 2009.

Charlie Huggins, an investment manager at Wealth Club, noted the greater pressure experienced by first-time buyers due to limited availability of high loan-to-value mortgages and the end of the Help to Buy scheme in England.

Housing Sector Slump Pulls Down UK Housebuilders

Shares of Barratt, the UK's largest housebuilder, saw a 2% decrease, contributing to a decline in the wider peer group. Persimmon, which recently faced a stock slide resulting in its removal from the FTSE 100, dropped 2.5%. Meanwhile, Taylor Wimpey dipped 1.5% and Berkeley fell 1.3%.

According to Russ Mould, Investment Director at AJ Bell, Barratt's gloomy results are indicative of the overall state of the housing sector. Rising business costs and increased borrowing costs for consumers have impacted demand and house prices.

The struggles in the housing sector played a role in the 0.7% decline of London's FTSE 100. Additionally, weakened Wall Street futures and concerns about surging energy prices affected the mood across Europe. Frankfurt's DAX 40 slipped 0.6% and the CAC 40 in Paris lost 0.9%.

Although German industrial orders experienced an 11.7% slide in July, the euro remained relatively steady. German 10-year bund yields also saw little change at 2.611%. The decline in orders was primarily influenced by a "very large order" in the aerospace sector that boosted June's numbers, according to the country's statistical agency.