Yahoo Finance FTSE 100: Barratt profits rise as mortgage rates ease
Housebuilder Barratt is optimistic around early signs of a recovery in homebuyer demand amid easing mortgage rates, as home sales edged higher in first month of 2023.
The average number of weekly private sales — the so-called net private reservation rate — at Barratt’s sites rose to 0.49 in January, up from 0.44 in the six months through December.
However, reservations remain under pressure after plummeting 57% in the final months of 2022 following the mini-Budget market turmoil that sent interest rates on mortgages soaring higher amid political and economic uncertainty.
Read more: UK house prices drop more than £12k since August
Barratt completed 8,626 homes in the second half of last year, a 6.9% increase on a year earlier. The FTSE 100 firm said pre-tax profit for the six months ended 31 December came in at £501.5m, compared with £432.6m a year earlier, marking a 15.9% rise in half-year profits.
Barratt said: “Reservations have shown a modest uplift since the start of January, helped by the tempering in both future interest rate and energy cost expectations, as well as the introduction of more competitive mortgage rates.
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“The sustainability of this recovery however remains uncertain, notably with respect to the challenges still faced by first-time buyers.”
Barratt added that if the recovery in demand continues, it expects to deliver total home completions of between 16,500 to 17,000 in 2022-23, down from 17,908 in the previous year.
David Thomas, chief executive of Barratt, said: “The economic backdrop has clearly been challenging and consumer confidence weakened significantly during the half, which meant we saw lower reservation rates for future sales – particularly in the second quarter.
“Whilst we have seen some early signs of improvement in current trading during January, we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing.”
Forward sales as at January 29 were 10,854 homes compared to 15,736 a year ago at a value of £2,665m.
“Housebuilders are on shaky ground at the moment, and this update from Barratts is understandably cautious,” Richard Hunter, head of markets at Interactive Investor, said.
“There is much to contend with. The half-year reporting period saw the fallout from the parlous mini-budget, interest rates continued their inexorable rise taking mortgage rates with them, and general affordability pressures resulted in a slump in potential house buyers. At the same time, there was also evidence of a cooling in house prices which could affect profitability, while in the background build cost inflation continues to eat into margins,” he added.
Mortgage costs have been gradually falling back following actions to stabilise markets and signs that wider interest rates may soon be peaking.
Read more: UK mortgage approvals slump amid higher borrowing costs
For the first time since the calamitous mini-Budget last September under former prime minister Liz Truss, five-year fixed-rate mortgages are now available at below 4% once again.
Charlie Huggins, head of equities at Wealth Club, said the housing market is very difficult to call right now.
“There has clearly been a marked slowdown in housing market activity in the last six months. Faced with higher mortgage costs and soaring bills, it’s no surprise that new home buyers are exercising greater caution.
“Barratt has responded by battening down the hatches, significantly reducing land approvals and placing restrictions on hiring and new site openings. This is sensible in the circumstances.
“However, the picture is not looking as grim as it was back in the Autumn, following the disastrous mini budget. Despite rising interest rates, mortgage rates have fallen in recent months due to intense competition between lenders. And there is a growing sense that interest rates are close to peaking. If that turns out to be the case, confidence in the housing market could quickly return.”
The company cut is interim dividend by about 9% to 10.2 pence per share.
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