Buyers Cancel UK Home Purchases At Fastest Rate Since Lehman
UK home buyers are pulling out of deals for new-build homes at their fastest rate since the second half of 2008 when markets were roiled by the collapse of Lehman Brothers.
Cancellation rates reported by Taylor Wimpey Plc are running at 24% in the second half of the year so far, exceeding levels recorded at the peak of the pandemic and following the UK’s shock Brexit vote in 2016, according to an earnings statement Wednesday. About 28% of sales at Persimmon Plc, the country’s largest homebuilder, were canceled over the last six weeks, the company said in a separate statement Tuesday.
The sharp rise in cancellations reflects the uncertainty that’s plaguing British consumers as they brace for rising interest rates, an energy crisis and a likely recession. The jump in cancellation rates during the global financial crisis preceded a sharp drop in homebuilders’ average selling prices as they were forced to accept discounts in order to sell completed stock.
Persimmon’s cancellation rate peaked at 35% in the final quarter of 2008 before gradually dropping back to 15% by 2014. The company ceased reporting specific data in 2015 beyond guiding investors that the rate was at the lower end of historic norms, as low interest rates and government stimulus buoyed demand for new build homes.
The company reinstated the metric in its third-quarter earnings statement following a sharp increase in aborted deals in the past six weeks, as former Prime Minister Liz Truss’s short-lived growth plan roiled UK markets and caused gilt yields to spike. That volatility fed through to mortgage markets, leading to sharp rises in borrowing costs for would-be homebuyers.
Persimmon’s cancellation rate had already risen to 21% in the 12 weeks from 1 July, before jumping further after Truss’s so-called mini-budget. Taylor Wimpey’s rate for the year to date is 18%, jumping to 24% for the 18 weeks since the start of July.
