Taylor Wimpey says demand for new homes is falling fast

One of the UK’s biggest homebuilders said demand is falling fast as buyers react to higher mortgage rates and the prospect of a recession.

Update on Wednesday Taylor Wimpy said he had been selling houses for about half as much in the past five months as he did in the first half of the year.

In another worrying sign for the sector, the number of Taylor Wimpey home buyers canceling purchases before completion has jumped more than 50 percent. So far, just under a quarter of purchases have been canceled in the second half, compared to 15 percent in the first half.

Taylor Wimpey still expects full year operating profit to be in line with previous guidance of around £930m but is nonetheless bracing for a challenging period.

“We are operating in a challenging economic and political environment and the sector is not immune,” said Jenny Daly, chief executive of the FTSE 100 group.

She added that higher mortgage rates after former Chancellor Kwasi Kwarteng’s “mini-budget” in September caused people to “reassess their ability to buy” and average selling prices stabilized after a period of strong growth.

The pace of sales could slow further, Investec analyst Ainsley Lammin warned because people who are shopping now will typically have cheaper mortgages that were negotiated before the budget was passed, while those who are starting the process now. will have to pay much higher rates.

“The key issue will be that if the pace of sales stays this low in the spring selling season, prices will start to come down,” he said.

Taylor Wimpey is also struggling with a 9-10 percent rise in construction costs. Meanwhile, new fees and the need to meet higher environmental standards in construction could add £4.5bn in the sector’s annual spending, according to the developers trade body.

Some are hoping for new Chancellor Jeremy Hunt’s assurances of his first budget next week.

“After the last few months, I would say that our clients are concerned about the budget. Why don’t you wait a couple of weeks and see what the chancellor has to offer you?” Daly said.

But Lammin said it was unlikely that Hunt’s announcement could reverse rising mortgage rates or prevent the economy from sliding into recession.

“It’s hard out there. Sales have dropped and we are in a new market,” he said.

Shares of Taylor Wimpey were flat at 98p on Wednesday and are down about 45 percent since the start of the year.