Cost of living: Barratt flags cooling demand in update described as 'canary in the coalmine' for housing market

Housebuilding giant Barratt Developments said its outlook for the year was “less certain” amid rising interest rates and market uncertainty though home completions are likely to be broadly in line with the previous year.

Issuing a trading update, the firm told shareholders that pre-tax profits are set to be in line with expectations despite market uncertainty in the wake of the UK government’s mini-budget.

Barratt reported 188 private reservations per average week over the period from July 1 to October 9, falling from 281 over the same period last year.

Hide Ad
Hide Ad

It noted that the lower reservation rate “reflects customer response to increased wider economic uncertainty, where growing cost-of-living concerns have been compounded by increased mortgage interest rates and reduced mortgage availability”.

Mortgage lenders have pulled hundreds of mortgage deals since the Chancellor announced his mini-budget amid growing concerns over borrowing costs. On Tuesday, said the average five-year fixed-rate mortgage climbed to 6.29 per cent and is expected to weigh on demand.

However, Barratt hailed a strong forward order book and rising selling prices. The average selling price across the order book was at £377,200 at October 9, compared with £344,300 a year earlier.

Chief executive David Thomas told investors: “We continue to see strong levels of interest across the country, however, private reservations remain below the level seen in full-year 2022 as customers react to the wider economic uncertainty. While the outlook for the year is less certain, we remain on track to deliver adjusted profit before tax for the year in line with current consensus.

“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.”

Barratt Developments ranks as the UK's largest housebuilder with a string of projects across Scotland.Barratt Developments ranks as the UK's largest housebuilder with a string of projects across Scotland.
Barratt Developments ranks as the UK's largest housebuilder with a string of projects across Scotland.

In the period under review, the firm delivered 3,608 home completions, including its share of joint ventures - a figure in line with its budget plans.

The completion profile in the full financial year is expected to remain broadly in line with the typical seasonal pattern, with around 45 per cent of the group’s full-year completions anticipated in the first half and 55 per cent in the second half of the financial year.

Adam Vettese, an analyst at social investment network eToro, said: “Barratt Developments’ latest trading update may well be the canary in the coalmine for the housing market.

Hide Ad
Hide Ad

“The housebuilder has reported a 33 per cent year-on-year reduction in net private reservations, a 2.5 per cent dip in completions and a forward sales pipeline that is more than 13 per cent smaller than it was this time last year.

“A positive is that it is charging nearly 10 per cent more for its properties now than it was a year ago, which in theory should boost profitability - but only if people can afford to buy them.

“The issue is that rising interest rates are beginning to create an affordability crunch in the mortgage market, making people less likely to qualify for a home loan.

“Housebuilders have had it all their way for the past two years, but things are beginning to change. Suddenly the housing market is looking much less robust than it has been.”



Want to join the conversation? Please or to comment on this article.