Barratt Developments warns a ‘deterioration’ in demand for homes due to rate pain has hit hard
Barratt Developments has warned a “deterioration” in demand for homes has hit housebuilding hard, as a tumultuous mortgage market continues to pile on misery, with the group’s share price down over four per cent when markers opened this morning.
The residential building company said net private reservation rate – the number of people putting their names down for a new home – slid 32.1 per cent with the figure slowing more significantly in mid May to the end of June.
This period, which tends to benefit from the summer, was hindered by the Bank of England’s decision to hike interest rates for the 13th consecutive time in efforts to cool inflation, sending the mortgage market into a frenzy.
Barratt also said it now predicts the total home completions of homes will be in the range 13,250 to 14,250 in 2024, which is another drop from the 16,500 and 17,000 figure chief David Thomas outlined following the fall out from the mini-budget in September.
An end to government schemes which help prospective buyers has also appeared to hit Barrat hard, with first time buyer reservations in the year reduced by 49 per cent compared to 2022, and accounted for more than half the decline in its total reservation rate.
However the business noted that demand amongst existing homeowners was “more resilient”.
Barrat’s said its balance sheet strength was maintained with year-end net cash of £1.07bn down from £1.13bn last june, after completing the £200m share buyback and land spend of £820m during the year.
“Whilst the trading backdrop has become more challenging in recent months, with many of our customers facing significant cost of living pressures, we have responded decisively – increasing our reservations into the private rental sector, using incentives for customers in a disciplined way, and flexing our build activity, land-buying and operating costs to reflect market conditions,” Thomas said.
The impact of the volatile housing market has also impacted the company’s shares, with shares down by around a tenth over the past 12 months.
“The future of the construction and housebuilding sector will be heavily dependent on how quickly inflation can fall in the coming months,” John Choong, equity analyst at InvestingReviews.co.uk, said.
“If CPI manages to miraculously fall more than expected, it could see markets price in a lower terminal rate, allowing mortgage rates to take a breather. However, another hot CPI print next week could shatter any hopes for the housebuilding sector, as the Bank of England will be forced to hike the base rate even higher, taking mortgage rates up with it.”