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The construction of new homes is being cut back in the UK amid indications that buyers fear a spike in mortgage rates over the next few months. 

According to a construction report, residential building site work plunged to its lowest last month since 2009. However, commercial building and civil engineering sectors, surveyed monthly by S&P and the Chartered Institute of Procurement and Supply (CIPS), demonstrated expansion.

Official interest rates have been raised 12 times in the past 18 months by the Bank of England as inflation continues to soar. 

Chief economist at the CIPS, John Glen, said, “Though overall output in the construction sector showed an improvement for the fourth month in a row, the steepest drop in housebuilding activity since April 2009, barring the initial pandemic lockdown in early 2020, will send a chill down the spine of the UK economy.”

The construction sector purchasing managers’ index indicated housebuilding activity in May at 42.7,  down from 43.0 the month prior - a below-50 reading means that output is minimizing rather than expanding.

Commercial building construction was recorded as the strongest-performing subsector, registering at 54.2, while civil engineering recorded an 11-month high of 53.9.

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This comes after a report by Resolution Foundation stated that around 1.6 million British households will face a £2,300 increase in mortgage payments after interest rates surged amid a current housing crisis

Despite the cutback, new order books for the sector were recorded at a high in more than a year, and price pressures and supply-chain restrictions eased.

“The residential subsector is closely linked to consumer confidence and levels of spending,” Glen stated, adding, “A further hike in interest rates is expected this month, and along with the relentless increase in the cost of living is making buyers hesitate about purchasing homes."

“As a result, builder confidence was pinched to remain below the survey average, as business costs remained high and firms expanded their workforce numbers at only a modest pace as they were cautious about their own affordability rates.”

Rents in London have increased by 9.1% since last year, driving the exodus. Due to high mortgage rates, some landlords have sold their properties, leaving tenants competing for a smaller pool of available homes, while other landlords are putting up prices that reflect the increase in mortgage costs.