The energy crisis and the ensuing economic turmoil in the UK are steadily seeping into all sectors, and it seems the housing market may be the next victim. Barratt Development PLC, Britain’s largest real estate developer, on Wednesday, January 11, 2023, said it would reduce its projects.
They are also cutting down land purchases and have reportedly scrapped 3293 plot proposals. Barratt is also planning to freeze hiring as the uncertainties are on the rise. High-interest rates are scaring off potential home buyers. Those who have been enjoying rock-bottom interest rates till now are rapidly losing their appetite as mortgage charges are increasing rapidly. Lenders have increased mortgage borrowing costs as a reaction to the rising interest rates, which have increased nine times in the past year.
Figures reported by the FTSE 100 firm suggest that there were signs of a slowdown from the last year, as the average weekly sales dropped by 44% from the last six months to the end of December. The value of bookings or sales also descended from 3.8 billion pounds to 2.5 billion pounds. Additionally, the company stated the average weekly net number of private reservations of properties sank in the second half of 2022, down from 259 to 155.
Ironically, Barratt had announced a 200 million share buyback programme in September 2022 after declaring a record profit figure. Insolvency specialist Julie Palmer from Begbies Traynor said that the slowing housing market could affect the buyback, and Barratt is aware of the same.
As per a report by the Royal Institution of Chartered Surveyors (RICS), it is believed that the 13-year-long housing market boom in the UK is finally coming to an end in 2023. The four biggest builders of the FTSE 100- Persimmon, Barratt, Berkeley and Taylor Wimpey are taking the blows of the growing fear of a slowdown in the share market. Barratt’s warning is also upsetting the shareholders in rival company Taylor Wimpey. In 2022, Persimmon shares lost 57 per cent of their value, while Barratt declined 47 per cent, Taylor Wimpey plunged 42 per cent, and Berkeley lowered 21 per cent.
Mortgage approval dips to the lowest level in two years
Bank of England suggests that the mortgage approval rates have dropped to the lowest in the last two years. In 2022 the numbers fell from 58000 in October to 46000 in November. New figures from the bank indicate that people were also borrowing more on credit cards as the cost of living pressure continues.
Some economists forecast that house prices, which were already low, will fall by 10% throughout the year. In November 2022, the actual interest rate paid on new mortgages increased by 0.26 per cent to 3.35%. Residents are increasingly taking a credit against their homes as inflation skyrockets. The Bank of England has also discovered that individuals borrowed £4.4bn against their homes during November, compared to £3.6bn in October.
The mortgage approval rates decreased after the previous UK prime minister Lizz Truss, and chancellor Kwasi Kwarteng disclosed the mini-budget in September 2022. Many deem the budget to be flawed. It promised tax cuts of billions of pounds without explaining how they would be paid for and led to mortgage rates rising.