Taylor Wimpey shares were firmly lower on Tuesday after the housebuilder announced 2023FY results and said the first half of the current year would see lower margins due to pricing pressure.
Against the backdrop of rising mortgage rates and a cost of living crisis, Taylor Wimpey’s revenue fell 20% to £3.5bn, and operating profit sank 49% to £70m.
“Taylor Wimpey’s put in a relatively resilient showing given the difficult market conditions of 2023. Full-year operating profits came in at the top end of group guidance, but this still represents a roughly 50% fall from the prior year’s levels,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
Taylor Wimpey shares were down 3.5% at the time of writing.
Investors will hope the worst conditions of the current UK housing market cycle are behind us, with mortgage rates showing signs of improvement and early signs of buyer interest picking up.
Indeed, the company is confident 2024 will generate a similar level of completions as 2023. Taylor Wimpey is targeting the completion of 9.5k to 10k homes in 2024 which is only marginally lower than the 10,766 homes completed in 2023.
“A combination of real house price declines and lower mortgage rates have helped to ease some of the affordability pressures for buyers since the beginning of 2023, and these trends appear to have carried into the new year. According to Rightmove, the first six weeks of 2024 saw a 7% increase in buyer enquiries year-on-year,” Chiekrie said.
Although there are some indications of improvement, the slowdown in the UK housing market last year was material, and we are not entirely out of the woods in terms of higher mortgage rates, with many lenders increasing rates in recent days.
The drop in the share price today will reflect not only the cloudy outlook for the market but uncertainties around a CMA investigation announced within a week, which could curtail margins further.
Despite the gloomy reaction in shares today, there may be positive developments for Taylor Wimpey at next week’s budget. Reports suggest the UK government could be looking at 99% mortgages – a measure that will surely fire up demand for new homes.
“The potential introduction of a 99% mortgage is a significant boom for the housing market, particularly since many of Taylor Wimpey’s buyers are first-time buyers,” said Yanmei Tang, Analyst at Third Bridge.
