Barratt warns of ‘marked slowdown’ in the housing market as outlook for the industry darkens
Barratt Developments has warned of a ‘marked slowdown’ in the housing market as the outlook for the industry darkens.
In a further sign that the pandemic property boom has come to a shuddering halt, the FTSE 100 firm reported a slump in sales amid rising mortgage costs and the threat of a fall in prices.
The bleak update came as analysts predicted profits for the major housing groups would decline sharply in 2023 following two years cashing in on red-hot demand.
Slowdown: In a further sign that the pandemic property boom has come to a shuddering halt, Barratt Developments reported a slump in sales amid rising mortgage costs
In an update for the six months to the end of December, Barratt said average weekly sales were 44 per cent lower than a year earlier, while the value of orders at the end of last year fell to £2.5billion, from £3.8billion.
It blamed ‘political and economic uncertainty’ and ‘rapid and significant’ changes in mortgage rates which cut affordability and knocked buyer confidence.
The outlook for the next six months was ‘uncertain’ with mortgage pricing and buyer optimism ‘critical’, it said.
It has paused hiring of staff and cut new land approvals to preserve cash. The shares dipped 0.2 per cent, or 0.7p, to 422.9p.
‘Having enjoyed more than a decade of rock-bottom [interest] rates, buyers are pulling back from making long-term financial commitments on mortgages as the cost of living crisis bites.
Barratt clearly recognises this,’ said Julie Palmer at insolvency specialist Begbies Traynor. She added that a ‘lengthy slowdown’ could affect a £200million share buyback announced in September.
Interactive Investor’s head of investment Victoria Scholar noted a ‘chronic shortage of supply’ was preventing a ‘more aggressive slump’ in prices.
Others were more upbeat. Aarin Chiekrie at Hargreaves Lansdown said he was ‘cautiously optimistic’ about Barratt’s prospects in the long run.
‘Barratt’s significant net cash position of £965million gives it plenty of wiggle room compared to peers, even if the market deteriorates further,’ Chiekrie added.
But Barratt’s warning is likely to unsettle shareholders in rival Taylor Wimpey, due to deliver its trading update tomorrow.
The signs of a slowing market appeared to herald a wider downturn in housebuilder profits, which soared during the pandemic amid demand for spacious properties and a stamp duty holiday.
The FTSE 100’s four biggest builders, Persimmon, Berkeley, Barratt and Taylor Wimpey, are projected to rake in profits of nearly £3.2billion in 2022, according to data firm Refinitiv estimates.
But this is expected to drop to £2.5billion this year. Persimmon is estimated to see a drop to £645million from £963million while Taylor Wimpey was predicted to slide to £551million from £850million.
Several builders have sounded the alarm. Berkeley warned last month that a cooling UK market and a ‘toxic’ mix of challenges would slow developments.
It highlighted issues such as a complex and slow planning system, higher costs, more regulation and the planned 6 per cent increase in corporation tax.
Taylor Wimpey has cut its housebuilding outlook on the back of weaker sales and rising cancellations, while Persimmon warned rising interest rates and economic uncertainty were ‘clearly’ impacting customer behaviour and demand.
The growing fear of a slowdown has hit hard. Persimmon shares lost 57 per cent of their value last year while Barratt sank 47 per cent, Taylor Wimpey dropped 42 per cent and Berkeley fell 21 per cent.
The pain is set to continue. Halifax reported the price of the average UK home fell 1.5 per cent in December and predicted prices would fall around 8 per cent this year.