Taylor Wimpey: rising rates are not cancelling out home-buyer demand

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Sometimes, the absence of terrible news is good enough. Housebuilder Taylor Wimpey is guiding towards operating profits of £440mn-£470mn this year. At the midpoint this marks a 50 per cent decrease versus 2022. But it is still better than expected.

The extent to which higher mortgage rates will deter home sales in Britain is unclear. Recent survey data has been mixed. Taylor Wimpey’s half-year results offer hope that a sharp price crash is unlikely.

Underlying interest from customers remains “strong”, says the company, which expects to build 10,000-10,500 homes this year. This is at the upper end of previous guidance.

Customers still desperate to get on the property ladder or upgrade their homes are trying to get around higher mortgage rates by taking out longer-term loans. Supply chain inflation, though running at an annual rate of around 6 per cent, is also moderating from 9-10 per cent at the start of the year.

These signs of resilience lifted an otherwise tough set of results. Completions reduced 26 per cent to 5,120, weighing on operating profits. Over the past four weeks, falling sales helped to lift the cancellation rate from 19 per cent last year to 24 per cent.

There are still many variables clouding the company’s outlook for 2024. On the plus side, a number of lenders have been lowering the cost of home loans, which could raise buyer demand. But outside macroeconomics, planning remains a problem.

Despite the market turmoil, Taylor Wimpey’s shares are up 2 per cent in the year to date. Housebuilders have proved good picks if investors buy near the bottom of downturns. But Taylor Wimpey trades on a forward price earnings multiple of more than 12 times, above peers such as Barratt Developments, which trades on a multiple of 8.5 times. Investors with the stomach to ride out further short-term housing market pain can find cheaper real estate elsewhere in the sector.