Housebuilder Barratt Developments has revealed early signs of a recovery in homebuyer demand as mortgage rates start to ease back, but said reservations remain under pressure.
The group said it has seen a “modest uplift” in reservations this month, though its weekly net reservation rate remains 46% lower year-on-year since the start of January.
It had seen reservations plummet by 57% in the final months of 2022 after the mini-Budget market turmoil sent interest rates on mortgages soaring higher amid political and economic uncertainty.
But mortgage costs have been gradually falling back following actions to stabilise markets and signs that wider interest rates may soon be peaking.
For the first time since the calamitous mini-Budget last September under former Prime Minister Liz Truss, five-year fixed-rate mortgages are now available at below 4% once again.
HSBC UK announced on Tuesday that it has reduced a five-year fixed-rate mortgage deal for borrowers with a 40% deposit to 3.99% in a further sign the market is settling following turmoil in the autumn.
Barratt said: “Reservations have shown a modest uplift since the start of January, helped by the tempering in both future interest rate and energy cost expectations, as well as the introduction of more competitive mortgage rates.
“The sustainability of this recovery however remains uncertain, notably with respect to the challenges still faced by first-time buyers.”
Barratt said if the recovery in demand continues, it expects to deliver total home completions of between 16,500 to 17,000 in 2022-23, down from 17,908 in the previous year.
But house prices are still under pressure despite easing mortgage borrowing conditions, with figures on Tuesday showing annual growth slowed to its lowest level in three years last month.
Halifax said house prices remained flat in January after decreases in November and December, and are now 1.9% lower year-on-year.
David Thomas, chief executive of Barratt, said: “The economic backdrop has clearly been challenging and consumer confidence weakened significantly during the half, which meant we saw lower reservation rates for future sales – particularly in the second quarter.
“Whilst we have seen some early signs of improvement in current trading during January, we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing.”
The update on recent trading came as Barratt reported a 15.9% rise in half-year profits to £501.5 million for the six months to December 31.
It notched up a 6.9% rise in total completions to 8,626 over the first half.
Forward sales showed the impact of recent woes in the sector, falling to 10,854 homes as at January 29, down from 15,736 a year earlier.