One of the UK's largest house-building companies, Taylor Wimpey, has warned that soaring mortgage rates are now affecting the ability of potential customers to buy a new home.
The company posted a slump in sales and earnings in the first half of the year, with revenues down 21.2 per cent to £1.64 billion ($2.09 billion), compared with the same period last year.
It also revealed that its pre-tax profit fell by 28.9 per cent to £237.7 million for the half year.
The results come just a day before the Bank of England is widely expected to increase interest rates for the 14th time in the current cycle, by at least 0.25 per cent to 5.25 per cent.
Nonetheless, Taylor Wimpey said the average selling price of the houses it built was 6.7 per cent higher in the first six months of this year, compared with the same period in 2022.
With its average house selling for £320,000 ($408,420), the home builder's chief executive, Jennie Daly, said the first half of the year was a time of "variable market conditions, including substantially higher mortgage rates".
“While this has inevitably impacted our results, I am pleased that we have delivered a resilient performance with first-half completions slightly ahead of our expectations.”
UK households have had their budgets squeezed by rising mortgage rates, high inflation and the worst cost-of-living crisis in decades.
'Mortgage availability and affordability'
Several of the UK's home-building companies issued downbeat assessments of the housing market when mortgage rates soared past 6 per cent during the early summer.
Taylor Wimpey said its cancellation rate in the four weeks ended July 30 was 24 per cent, compared with 19 per cent in the same period a year earlier. The cancellation rate is seen by analysts as an early indicator of potential stress in the housing market.
"A brief bounce in fortunes due to the traditionally strong spring selling season was largely undone by a further interest-rate rise, which in turn resulted in higher mortgage rates," said Richard Hunter, head of markets at Interactive Investor.
"This has unsurprisingly driven a reduction in reservations and completions, an increase in cancellations and questions over general mortgage availability and affordability, especially for first-time buyers."
Ms Daly said the company, which still expects to sell 10,000 to 10,500 homes in the full year, is "well positioned to manage the business through near-term challenges".
"Recent Nationwide data has shown that house prices have fallen at the fastest rate since the financial crisis, highlighting the extent of the pain," said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
"Taylor Wimpey’s pricing seems to be holding firm for now, but the scope of demand weakness will determine how long that’s the case.
"With the worst of the financial pain from higher interest rates yet to fully feed through to households, this will definitely be something to watch."
