Mortgage 'famine' hitting builders

Published on Tuesday 7 September 2010 22:20

A LACK of mortgage finance for would-be homeowners is continuing to threaten the construction industry, according to housebuilding heavyweight Barratt Developments.

• House builders are struggling as mortgage lending falters Picture: Cate Gillon/Getty Images

While the group noted that conditions in the housing market have steadily improved in the past year, it added that the number of buyers and sellers was still "extremely low" by historical standards.

Barratt, the UK's largest house builder by volume, said market conditions forced it to build fewer sites, which would do "little to address the nation's fundamental housing shortage".

The warning came as the firm yesterday posted a pre-exceptional loss of 33 million in the year ending 30 June. Losses narrowed from last year's 144m shortfall and were marginally better than analysts' 38m forecast.

The company, which trades as Barratt and David Wilson homes, said it benefited from a 10.9 per cent rise in its average selling price to 174,300 over the financial year, primarily due to a move away from flats to houses.

But the firm also reported a slowdown in trade in the ten weeks since the end of the financial year, with net private reservations down - though this is in line with seasonal trends.

Chief executive Mark Clare said: "It's early days in the autumn-selling season but so far private reservation rates are in line with expectations and prices are holding up."

House prices fell much faster than expected last month, according to a monthly survey from mortgage lender Nationwide, stoking concerns that the UK could be headed for a double-dip recession.

Yet figures from rival lender Halifax yesterday confounded expectations by showing a rise in prices in August.

Chairman Bob Lawson said economic uncertainty may influence the company's future.He said: "The key restriction on the industry remains the availability of mortgage finance.

"Whilst there was some improvement during the year, the lack of availability of suitable higher loan to value products continued to restrict the new build sector where customer deposits have traditionally been lower.

"Whilst the improved balance between supply and demand has stabilised prices, it has done little to address the nation's fundamental housing shortage which in the longer term will underpin the sector's growth."

The firm has responded to the tight market conditions by reducing volumes, and focusing on cost control and efficiency measures, such as renegotiating material supply contracts.

Chris Millington, analyst at Numis Securities, said he expected Barratt to move into profit at the pre-tax level in 2011.

He said: "We expect profits to benefit from a combination of volumes growth and average sales price growth due to mix, margin improvement and lower finance costs."

Barratt said it had reduced net debt to 366.9m from 1.28 billion, and added forward sales as at 30 June were up by 27 per cent at 591.7m.