Barratt cuts dividend amid housing slump as soaring mortgage rates continue to batter demand

Britain’s largest housebuilder posted a slump in profits as soaring interest rates continue to batter demand.

Barratt Developments said adjusted profits before tax tumbled 16.2 per cent to £884.3million in the 12 months to the end of June, having topped £1billion the previous year.

The number of homes built and sold fell by 702 to 17,206.

Barratt revealed it would cut is final dividend to 23.5p from 25.7p last year and stall share buybacks but added that it had net cash of £1.06billion on its balance sheet. 

Slump: Barratt Developments said profits tumbled 16.2% to £884.3m in the 12 months to the end of June, having topped £1bn the previous year

Like rivals, Barratt has fallen victim to the 14 consecutive interest rate rises that have hit demand as mortgage rates soar. 

Rates have risen from 0.1 per cent to 5.25 per cent since December 2021 – spelling misery for borrowers – with a further hike expected this month.

However Bank of England Governor Andrew Bailey yesterday said rates are ‘much nearer’ their peak.

While Barratt has been hit by rising borrowing costs, it has also seen the cost of doing business soar due to inflation.

And boss David Thomas warned Britain’s ‘ineffective planning system’ was holding back development.

But revenues climbed 1 per cent to £5.32billion last year as the average price of a Barratt home rose 7.9 per cent to £367,600.

Its shares fell 0.7 per cent, or 3.3p, to 440p. Britain’s eight biggest housebuilders have seen £15billion wiped off their market value since the first interest rate hike in December 2021.

Thomas said: ‘Customers continue to face cost of living and mortgage affordability challenges, and new developments are increasingly constrained by an ineffective planning system. 

‘Whilst we expect that the backdrop will continue to be difficult over the coming months, we are a resilient business.’

Earlier this year the group said it would cut back its land buying. A slowdown in development has fuelled fears not enough homes are being built.

Charlie Huggins, a manager at broker Wealth Club, said: ‘The outlook for Barratt is murky at best.

‘Cracks are starting to appear in the housing market, and while interest rates should be close to peaking, first-time buyers remain under enormous pressure. 

Until there is greater clarity on the future path of interest rates it seems unlikely market conditions will significantly improve.’

Richard Hunter, head of markets at Interactive Investor, said the firm’s £1.1billion cash pile and plans to cut back on payout stood it in good stead.

‘Barratts is playing a decent hand with the woeful cards being dealt to them,’ he said.

This post first appeared on Dailymail.co.uk