British property builder Barratt Developments warned on Wednesday that the UK property market had slowed over the past six months, the result of recent political chaos in the country, economic uncertainties and rate hikes.
The group says it has seen a marked slowdown in the UK housing market, in a business report on its staggered first half, ending December 31.
It points to the political and economic uncertainties in the first quarter which were aggravated by rapid and significant changes in real estate rates.
The British real estate sector, which had flamed with the Covid-19 pandemic, suffered a brake at the end of 2022, in particular seeing the rise in prices slow down over one year. Industry experts expect a contraction this year.
Among the factors weighing on real estate, mortgage rates have risen in recent months, notably as a result of regular increases in the Bank of England’s key rate to curb inflation, which is close to 11% in the country.
But they also jumped at the end of September in the wake of British government borrowing rates, suffering from massive and poorly calculated budget announcements from the short-lived government of Prime Minister Liz Truss, almost entirely canceled since.
Real estate rates 5.5%
After hovering around 2% in recent years, mortgage rates had risen above 6% and are now around 5.5% for 2 to 5 year fixed rate loans, according to financial data site Moneyfacts.
The United Kingdom also saw its economic activity contract in the third quarter, and according to many forecasts the country has already entered a recession which will extend into 2023.
Barratt Developments lost 0.17% to 422.90 pence on the London Stock Exchange on Wednesday.
Barratt said he achieved a solid operational performance over the period, thanks in particular to a well-filled order book before the turbulence, according to its managing director David Thomas, quoted in the press release. Barratt has thus seen the number of houses completed increase compared to the previous year.
But the outlook for the rest of the financial year is darkening, with uncertainties over buyer confidence, availability and prices of home loans, according to Barratt, who has seen his order book for the next six months empty.
Real estate loan: find out the lowest rates for your project
While the extreme dislocation in the mortgage market that followed the government’s Truss budget announcements can be seen as a one-time event, higher borrowing costs for buyers are here to stay, warns Russ Mould, an analyst at AJ Bell.
The policeman of the British markets, the FCA, has also pointed out in a letter to the Parliamentary Committee on the Treasury that 770,000 households are in the process of defaulting on their mortgages or risk defaulting in the next two years.
A figure which could evolve in the wake of interest rates, because mortgages in the United Kingdom are largely variable rates (fixed only over two to five years in general).
The Bank of England’s key rates are currently at their highest since October 2008, in the midst of the financial crisis, 3.5%, and should rise further, according to market forecasts.
Real estate rates also evolve according to borrowing rates on the bond market, which remain historically high since the passage of Liz Truss Downing Street and compared to the EU and the United States.