By Suban Abdulla and Aby Jose Koilparambil
LONDON (Reuters) - Britain's largest homebuilder Barratt Developments (LON:BDEV) said it would build far fewer homes in its fiscal year as rising mortgage rates and inflation hit demand, compounding strains in the country's slowing housing market.
The FTSE 100-listed firm said it expected to build between 13,250 and 14,250 units in the year ending June 30, 2024, down from 17,206 homes the year before.
Delivering at the mid point of the range would mark a 20% drop - the same cut to forecasts as flagged by high-end housebuilder Berkeley last month for its fiscal year.
Britain's housing market has been hit by rapid increases in interest rates, which analysts think could rise to 6.25% by the end of this year from 5% now, adding to pressure on homeowners and buyers. Average two-year fixed mortgage rates reached a 15-year high earlier this week.
Barratt said reservations had slowed from mid-May to the end of June, beyond normal seasonal trends. Its shares fell by as much as 5.3% to 396 pence, their lowest level since Dec. 21, 2022, and making the stock the biggest loser on the blue-chip index.
Julie Palmer, partner at Begbies Traynor (LON:BEG), said Thursday's trading update underlined the impact of rising rates on homebuyers, construction firms and other businesses linked to the sector.
Building materials company Travis Perkins (LON:TPK) had warned of a hit to profit in June.
Britain's housing market is closely linked with consumers' sense of wealth - and willingness to spend - and indicators on everything from mortgage demand to construction rates and prices have all started to slide.
Historically, big increases in swap rates, an indicator lenders use to determine the cost of mortgage borrowing, often precede slumps in housing starts, a Reuters analysis of the last 35 years showed.
Richard Hunter, head of markets at Interactive Investor, said the impact of runaway inflation does not compare to the existential concerns around the 2008 financial crash, but the sector would suffer.
"Housebuilders are part of a highly cyclical sector and at the current time are inevitably being hindered by an economic downturn which shows no immediate signs of abating," he said.
Barratt's forward sales position - a metric to gauge housing demand - declined to 2.22 billion pounds ($2.89 billion) as of June 30, compared with 3.62 billion pounds a year ago.
It expects adjusted profit before tax for fiscal 2023 to be in line with current market expectations.
($1 = 0.7688 pounds)