Yahoo Finance FTSE 100: Barratt warns outlook 'less certain' as mortgage deals dry up
The UK’s largest homebuilder, Barratt Developments (BDEV.L), said its outlook looked “less certain” as prospective homebuyers react to rising interest rates and reduced mortgage availability.
In a half year trading update, the FTSE 100 (^FTSE) firm said it had launched 25 new developments in the first six months of the year — down from 27 in the same period last year — with 3,608 homes in total, down from 3,699 last year.
“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 said.
Total forward sales as of 9 October slumped to 13,314 homes, down from 15,393 at the same point last year.
Still, the group said that average selling price across the order book was at £377,200 on 9 October, compared with £344,300 a year earlier.
Read more: UK economy shrinks in August as recession fears mount
Barratt, which last month announced a £200m 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.
Adjusted full-year pre-tax profits are expected to come in at £972.5m, in line with analysts’ estimates but down on previous guidance and lower than the £1.05bn recorded last year.
David Thomas, chief executive, said: “We continue to see strong levels of interest across the country, however private reservations remain below the level seen in FY22 as customers react to the wider economic uncertainty.”
The housebuilder said that net private reservations per average week were 188 compared to 281 for the year as a whole and net private reservations per active outlet per average week were 0.55 compared to 0.85 for the whole year and 0.87 in 2021.
“Whilst the outlook for the year is less certain, we remain on track to deliver adjusted profit before tax1 for the year in line with current consensus, and 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,” Thomas added.
Since chancellor Kwasi Kwarteng’s mini-budget last month, mortgage rates have spiked, with the cost of two-year fixed rate loans rising to about 6%.
Read more: Kwarteng defends mini-budget as he refuses to apologise for turmoil
Mortgage lenders have also pulled hundreds of mortgage deals amid growing concerns over borrowing costs.
On Tuesday, Moneyfacts.co.uk said the average five-year fixed-rate mortgage climbed to 6.29% and is expected to weigh on demand.
Richard Hunter, head of markets at Interactive Investor, said: “Given that the country is gripped with wider economic uncertainty, inevitably some chinks in the armour have begun to appear for the housebuilders.
"Barratts has seen a sharp decline of 33% in net private reservations per week for the latest period, although on most metrics numbers remain above pre-pandemic levels. Forward sales have also declined by 13% in number and by 8.5% in value, although the general position is one of a strong order book which is 64% forward sold even at this early part of the new trading year.
"Average selling prices have risen by 9.6%, which is mitigating some of the effect of build cost inflation, which the company expects to continue into next year at its current rate of between 9% and 10%. At the same time, Barratts has pulled back sharply on new land acquisition, given a lack of suitable opportunities which meet the group’s high hurdles of gross margin and return on capital. Even so, its strong existing land bank is a real prop to any slowdown in immediate purchasing activity."
