Housebuilder Barratt faces major cost hike as staff get cost-of-living help

Housebuilding giant Barratt Developments is facing a rise in build costs of as much as 10 per cent as soaring energy prices and inflation take their toll.

In a trading update, the group said build cost increases have escalated to between 9 per cent and 10 per cent, up from around 6 per cent over the year to the end of June. The surge is said to reflect “the impacts of escalating energy costs and fuel cost inflation in relation to transportation”.

Barratt recently announced a £1,000 bonus for 6,000 staff below senior management level as it looks to help workers with the cost-of-living crisis. The payment will be spread over six months, with the first being made in July.

It comes on top of a move announced earlier this year to bring forward a 5 per cent pay rise from July to April 1.

Despite the inflation pressures, the group said full-year underlying profits for the year to June 30 will be slightly better than expected as its house completions bounced back to levels seen before the coronavirus pandemic struck.

It now expects pre-tax profits of about £1.06bn for the year, which is slightly ahead of forecasts and up from £919.7 million posted in 2020-21.

Home completions returned to pre-pandemic levels, with 17,908 notched up over the year against 17,243 in 2020-21. Average private selling prices, meanwhile, rose to £341,000 from £325,500 the previous year.

The group told investors: “Looking forward, we recognise that significant macroeconomic uncertainties remain, most notably around rising inflation and interest rates and their consequent impacts on UK economic growth, employment, as well as consumer confidence and spending.”

Barratt is one of the biggest volume housebuilders in the UK with a string of developments across Scotland.

It still expects to grow house sales by between 3 per cent and 5 per cent in the year to next June, assuming no major supply chain disruption or worsening of market conditions.

Chief executive David Thomas added: “While there are clearly macroeconomic uncertainties ahead, the housing market remains robust, our forward order book is strong and we have the resilience and flexibility to react to changes in the operating environment.”

Julie Palmer, a partner at business recovery specialist Begbies Traynor, said: “Despite a booming property market, 2022 has been a challenging year for the housebuilders with shares taking a hammering since January and the shockwave from the end of the stamp duty holiday continuing to resonate.

“While there is clearly still plenty of demand, and this update from Barratt reflects that, there are a number of significant concerns facing the sector right now, including supply chain issues for raw materials and the tight labour market.”

Richard Hunter, head of markets at investment platform Interactive Investor, noted: “Further out, the building blocks remain in place for further growth. There have been no suggestions from any of the main political parties that they wish to intervene given the overall housing shortage across the country, while mortgage availability remains plentiful and accessible by historical standards.

“However, the clouds which overhang the sector have had a fairly severe impact,” he added.