Barratt Developments reports much weaker sales and reservation levels

Barratt Developments sales remain significantly below last year’s levels, but the housebuilder has observed a solid recovery in demand since the start of 2023. 

The housebuilder reported that the net private reservation rate – the number of people putting their names down for a new home – at its active outlets had risen from 0.49 units per average week during January to 0.71 in the following 12 weeks.

It credited much of the demand bump to higher multi-unit sales to social landlords and the private rented sector, as well as soaring rents and the energy efficiency of its new builds.

Recovery: Barratt reported that the net private reservation rate at its active outlets had risen from 0.49 units per average week during January to 0.71 in the following 12 weeks

Like other British construction businesses Barratt was impacted by a more challenging UK property market during the period, with mortgage rates at elevated levels and cost-of-living issues squeezing consumer incomes.

Forward sales between January and April 23 totalled £2.96billion, about a third down on the same period in 2022, while the net reservation rate was 30.1 per cent lower.

Construction also finished on 3,194 properties, against 3,915 last year when house prices were booming due to chronic supply shortages, low interest rates and a growing willingness among Britons for extra space.

In the months following the controversial mini-budget last September, reservations at Barratt plummeted by almost two-thirds due to surging mortgage rates, and  political and economic uncertainty.

Markets have subsequently calmed in recent months, leading to a rebound in sales at Barratt, which forecasts an annual pre-tax adjusted profit of £876.8million for the financial year ending June.

Chief executive David Thomas said: ‘In February, we reported early signs of recovery in our reservation rates following the exceptionally challenging trading conditions experienced at the end of 2022.

‘Whilst the economic backdrop remains difficult, we are pleased that more positive sales rates have been maintained through this period, and we are now fully forward sold for FY23.’

In tandem with Barratt, rivals Taylor Wimpey and Persimmon reported last week that they had witnessed a significant rebound in activity over recent months.

UK house prices are also picking up again, rising to £260,441 in April after declining in the previous seven months, according to the latest Nationwide house price index.

Victoria Scholar, the head of investment at Interactive Investor, said the figures ‘pointed to tentative signs of recovery in the housing market at the chaos around September’s mini-budget shifts to the rear-view mirror.

‘With the Bank of England approaching the peak of its rate hiking cycle, inflation expected to fall this year, and the UK’s most pessimistic economic forecasts from last year having unwound, there are hopes for a bounce back in Britain’s housing market, providing a tailwind to the housebuilders’ sector.’

Mark Crouch, analyst at eToro, added: ‘Whisper it for now, but Barratt Developments’ trading statement underlines potential green shoots of a recovery for the property market. 

‘Taken in tandem with Nationwide’s house price index from yesterday and the market might just dare to dream that the worst of the falls might be over.’

Barratt Developments shares were 0.5 per cent lower at 502.8p on Wednesday morning, although their value has expanded by around a third in the past six months.

This post first appeared on Dailymail.co.uk