Barratt Developments Plc has seen a sharp slowdown in sales rates as high borrowing costs and the threat of a house price plunge combine to undermine the UK property market.
(Bloomberg) — Barratt Developments Plc has seen a sharp slowdown in sales rates as high borrowing costs and the threat of a house price plunge combine to undermine the UK property market.
The average number of weekly private sales at Barratt’s sites has more than halved, leading the firm to warn that it could deliver fewer homes than currently expected, according to a statement Wednesday. With a seasonal uptick in demand in the spring it will still complete 17,475 homes but without that the figure could be between 16,000 to 16,500 homes in 2023.
“Political and economic uncertainty impacted the first quarter; this was then compounded by rapid and significant changes in mortgage rates which reduced affordability, homebuyer confidence and reservation activity through the second quarter,” Chief Executive Officer David Thomas said in the statement.
The homebuilder said net private reservations per week fell to 0.3 in the six months ended Dec. 31, compared with 0.69 in the same period a year earlier. That’s as the company’s forward order book dropped to 10,511 homes in the same period, compared with 14,818 a year prior.
Market Uncertainty
Barratt’s net land approvals were negative during the period, with a net 290 plots cancelled. This reflected the increased uncertainty in the UK housing market, the company said, which faces disruption as it adapts to higher mortgage rates and gloomy house price forecasts.
Over 800,000 UK households will see their mortgage rates more than double this year as they come off fixed-rate deals, according to an Office for National Statistics analysis of Bank of England data. These soaring borrowing costs are the main driver behind predictions of a 10% drop in values this year.
“Barratt is battening down the hatches as storm clouds loom over the UK housing market,” said Anthony Codling, a former Jefferies housing analyst who now runs property website Twindig. Still, the company “has a strong balance sheet to see it through the housing market challenges ahead,” he added.
Barratt fell as much as 3.92% and was down 1.4% as of 9:35 a.m. in London.
The homebuilder warned that its full year performance will depend on how the housing market evolves in the early months of 2023.
“During the second half, we anticipate construction activity will continue to moderate as customer commitments within our order book are satisfied and as construction activity continues to align with reservation activity,” the company said in the statement.
–With assistance from Jack Sidders.
(Updates with an analyst comment in the seventh paragraph and share price move in the eighth paragraph)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.