By Jamie Chisholm
Shares of U.K. housebuilders led the London market lower Wednesday, after the sector’s biggest company by market cap reported a slide in home sales as surging mortgage costs deter buyers.
Barratt Developments said its average weekly private net sales rate for July and most of August was 0.42, notably lower than a rate of 0.65 for the last financial year to the end of April.
Chief Executive David Thomas said in a statement: “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.”
Britain’s housing market has been hit in recent months by rising interest rates as the Bank of England fights to damp inflation, which last year hit a multi-decade double-digit high. The British Bankers’ Association’s mortgage rate has risen from around 3.6% in at the end of 2021 to 7.7% in July 2023.
Mortgage lender Nationwide said at the start of the month that U.K house prices fell by 3.8% in the year to July, the fastest pace of decline since the global financial crisis in 2009.
“First time buyers have experienced even greater pressure, given the limited availability of high loan to value mortgages and the end of the Help to Buy scheme in England,” noted Charlie Huggins, investment manager at Wealth Club.
Barratt shares lost 2%, while peers Persimmon , whose recent stock slide saw it booted out of the FTSE 100, shed 2.5%, Taylor Wimpey dipped 1.5% and Berkeley fell 1.3%.
“The UK’s biggest housebuilder is a good bellwether for the wider sector so gloomy results from Barratt Developments are unsurprisingly dragging down the peer group. The costs of doing business are still rising while increased borrowing costs for consumers are hitting demand and house prices,” said Russ Mould, investment director at AJ Bell.
The housing sector’s struggles contributed to a 0.7% decline for London’s FTSE 100 UK:UKX. Indeed the mood across Europe was fairly dour as weakness in Wall Street futures and concerns about a recent move higher in energy prices took their toll. Frankfurt’s DAX 40 DX:DAX slipped 0.6% and the CAC 40 FR:PX1 in Paris lost 0.9%.
The euro was a bit firmer and German 10-year bund yields BX:TMBMKDE-10Y little changed at 2.611% after the market shrugged off a report that showed German industrial orders sliding 11.7% in July. That was the biggest fall since April 2020 during the pandemic shutdown, but the country’s statistical agency said the drop reflected a “very large order” in the aerospace sector that lifted June’s numbers.
-Jamie Chisholm
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09-06-23 0832ET
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