Barratt sees new home reservations slump by 30% as mortgage crunch hammers sales
Barratt sees new home reservations slump by 30% as mortgage crunch hammers sales
- Revenue up by 1% to £5.3bn for the year ending 30 June 2023
- Pre-tax profit rose 9.8% to £705.1m over the same time period
Britain’s largest home builder Barratt Developments has revealed a slump in demand driven by the mortgage crunch, with new home reservations sliding by a third
The housebuilder’s annual results revealed an increase in its pre-tax profits and revenue but it flagged that new home reservations had tumbled since July from an average of 0.6 homes per week to 0.42 homes per week.
In a July trading update, Barratt revealed that it had built 17,206 homes this year, down 3.9 per cent annually, but it now expects to build almost a quarter less next year – with a forecast of between 13,250 to 14,250 units.
Despite the murky outlook, the Leicestershire-based builder revealed revenue was up by 1 per cent to £5.3billion for the year ending 30 June 2023, in line with expectations, and statutory pre-tax profit rose 9.8 per cent to £705.1million.
Barratt Developments have seen an increase in its pre-tax profits and revenue in the past year
David Thomas, chief executive of Barratt Developments, said the rapid rise in mortgage rates as the Bank of England has hiked base rate from 0.1 per cent to 5.25 per cent in under two years was taking its toll.
The average five-year fixed mortgage rate hit a peak of 6.37 per cent in July, but has since slipped back to 6.19 per cent. Two years ago the average five year fixed mortgage rate was 2.75 per cent.
Thomas said: We have delivered a strong operational performance in a challenging operating environment.
‘Customers continue to face cost of living and mortgage affordability challenges, and new developments are increasingly constrained by an ineffective planning system.’
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.
Barratt Developments shares were down 1.94 per cent to 434.70p in morning trading on Wednesday.
Sentiment on housebuilders has been hit as rising interest rates have significantly impacted the housing market, with City forecasters saying the Bank of England’s base rate could peak as high as 6.25 per cent as it tries to bring inflation to heel.
But housebuilders have continued to profit from high house prices, with Barratt revealing that its average private sale price was up 7.9 per cent annually to £367,000. However, Barratt added that this number had slowed from 13.6 per cent in the first half of its financial year to 3.2 per cent in the second half.
Richard Hunter, head of markets at Interactive Investor, said: ‘All things considered, Barratts is playing a decent hand with the woeful cards being dealt to them in the current environment.
The list of headwinds is well-documented and lengthy and is likely to spill over into the new financial year.
Squeezed mortgage affordability and availability is resulting in waning customer demand, while broader concerns over general economic growth, consumer confidence and spending are all darkening the picture.
‘At the same time, the removal of the Help to Buy scheme has removed an important plank from first-time buyers and legacy costs for remedial building work continue to come at a significant cost, totalling some £179 million in this period.
He added: ‘The uncertain outlook is reflected in the shareholder return announcement, traditionally a sign of management confidence.
‘There will be no further share buybacks over the coming period, while the dividend has also been reduced as the group intends to retain its cash to buffer against the upcoming challenges.
‘Despite the dividend reduction, the projected yield of 7.6 per cent remains punchy given the economic backdrop and will continue to catch the eye of income-seeking investors.’
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