Britain’s biggest housebuilder has said it will take at least two years for the housing market to recover.

David Thomas, chief executive of Barratt Developments, said the number of new builds constructed in Britain would fall for at least the next two years as high borrowing costs hammer sales.

Barratt warned it would build 3,000 fewer homes next year in response to falling demand and said it has stopped buying new land to build on.

Mr Thomas said: “The number of homes being built next will be down considerably. There won’t be an increased volume of homes until 2025 earliest, if not 2026.”

The dour outlook came as figures showed last month was the worst for house building across the UK since the first pandemic lockdown in May 2020.  

The S&P Global/CIPS UK Construction purchasing managers index (PMI) found house building remained the weakest-performing part of the construction sector last month.

Giulia Bellicoso at Capital Economics said: “High mortgage rates have taken the cost of buying a home out of reach for many, causing demand for new builds to slump.”

Ms Bellicoso said new housing starts were likely to drop by a third in the final quarter of the year.

Mr Thomas said: “We expect that the backdrop will continue to be difficult over the coming months.

“Whilst there remains a clear need for increased house building in the UK, short-term demand has been impacted by mortgage affordability challenges.”

Many potential buyers have been priced out of the market after 14 consecutive increases in interest rates by the Bank of England to 5.25pc, which have sent mortgage rates surging.

Barratt is the latest major housebuilder to warn it will build fewer homes as demand dries up. 

Rivals Persimmon and Taylor Wimpey have both said they will have fewer completions next year than last, while the House Building Federation (HBF) warned earlier this year that house building could fall to its lowest level since the second world war.

Government briefing papers suggest England needs around 340,000 new homes built each year but under 120,000 could be completed annually in the coming years, the HBF warned.

Results published on Wednesday show Barratt built 700 fewer homes in the 12 months to June 2023 than it had the previous year. The FTSE 100 completed 17,206.

As well as slumping demand, housebuilders have been hit by nutrient neutrality rules designed to limit the amount of harmful chemicals coming from new homes that make their way into rivers and harm wildlife.        

The rules forced housebuilders to pay for projects to reduce river pollution before homes could be built. Levelling Up and housing secretary Michael Gove recently axed the red tape to boost construction.

Mr Thomas welcomed the change but said planning delays at the local level were still holding up developments.

Mr Thomas said: “Nutrient neutrality removal is good news for the country, especially with more than 70 authorities not providing [planning] consent on this basis.

“We then need local authorities to actually grant planning [permission]. So it will take at least 18 months to two years to build the homes tied up in this. This is not going to unlock homes anytime soon.”

Barratt’s share price fell as much as 1.9pc in early trading on Wednesday after announcing a 16.2pc drop in its adjusted pre-tax profits to £884.3m.

The housebuilder, which employs more than 6,000 people, has reduced its headcount by 6pc, or 400 staff, since 2022.