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UK Housebuilders May Cut Dividends Amid Slowing Sales

UK housebuilders may cut dividends to save cash and weather a potential downturn in the property market.

Home construction
Home construction

High mortgage rates have made homes less affordable, and economic uncertainty has deterred buyers. In November, Persimmon scrapped its dividend policy and ruled out a special dividend, a move that could set the trend in a sector that saw share prices fall last year.

Mortgage rates have risen due to rising inflation, and the government's mini-budget in September caused turmoil in the bond markets, driving borrowing costs higher. As a result, home sales have suffered, and UK house prices have slid the most since the 2008 financial crisis in December. The number of mortgages approved by UK lenders also fell to its lowest point since mid-2020.

Investors will pay close attention to dividend policies as major UK housebuilders release trading updates this week, starting with Barratt on Wednesday. Analysts predict that dividend cuts could come from many firms, particularly those whose payouts are linked to earnings growth. Such cuts would further blow the sector, which saw its index fall more than 44% in 2022. To attract more buyers, housebuilders may need to offer incentives such as assistance with mortgage payments and covering expenses for customers making a move.