Britain’s largest homebuilder Barratt Developments has warned its trading outlook is now ‘less certain’ as homebuyers face rising mortgage rates and living costs.
Barratt revealed in a trading update that average new home reservations were running at 181 per week, a third down on the 281 per week seen in its last full financial year.
The property sector has suffered increasing stress in recent months with mortgage rates through the roof and a worsening economic climate due to the cost-of-living crisis and recession fears.
While house price inflation remains high on an annual level, at 9.9 per cent according to Nationwide Building Society, there are early signs that it is tailing off. Meanwhile, the average two-year fixed mortgage rate has climbed above 6 per cent, compared to 2.34 per cent last December.
Britain’s largest homebuilder Barratt Developments has said its annual outlook looked ‘less certain’ as homebuyers face rising mortgage rates and living costs
Barratt has seen an ‘expected reduction’ in help-to-buy activity as the scheme approaches its end in March 2023, with the sector accounting for just 12 per cent of reservations from 1 July 2022 to 9 October 2022, compared to 51 per cent in 2021 and 45 per cent in 2020.
As a result, Barratt said in a statement: ‘The outlook for the year is less certain with the availability and pricing of mortgages critical to the long-term health of the UK housing market.’
Barratt’s shares slid more than 7 per cent, trading at 317.40p by around 9am on Wednesday.
In line with expectations, the firm launched 25 new developments from 1 July 2022 to 9 October 2022, and it expects to deliver an average sales outlet growth of around 3 per cent in 2023.
During the same period, it delivered 3,608 home completions, ‘in line’ with its budget plans.
Barratt said its completion profile in FY23 is ‘expected to remain broadly in line with the typical seasonal pattern’, with around 45 per cent full year completions anticipated in the first half of FY23 and around 55 per cent in the second half of the financial year.
Reflecting the slower reservation rate, Barratt’s total forward sales as of 9 October 2022 totalled 13,314 homes with a combined value of £3.603billion, this compares to 12,963 homes at a value of £3.07billion for roughly the same period in 2019.
In terms of the average private selling price in its forward order book, Barratt’s rate currently stands at £377,000, which compares to £331,400 in 2000 and £316,000 in 2019.
Despite signs of slowdown with the UK housing market, Barratt saw the construction of 367 homes per average week in the July to October period.
It explained: ‘We will be closely monitoring changing market conditions in the coming months to ensure our site build programmes align with home delivery scheduling to meet customer commitments within our order book, as well as ongoing market demand.’
The FTSE 100 company, which last month announced a £200million share buyback after posting a record annual profit, said it was on track to deliver adjusted profit before tax in line with its current expectation for the fiscal year 2023.
Looking ahead, it expects a build cost inflation of between 9 per cent and 10 per cent.
David Thomas, chief executive of Barratt, said: ‘We continue to see strong levels of interest across the country, however private reservations remain below the level seen in full-year 2022 as customers react to the wider economic uncertainty.
‘Whilst the outlook for the year is less certain, we remain on track to deliver adjusted profit before tax for the year in line with current consensus.
‘We are focused on maintaining our commitment to lead the industry in the quality, energy-efficiency and sustainability of our homes and in our customer service, all of which are fundamental to our ongoing success amid a more challenging market backdrop.’
